When you lose, you pay astronomical amounts of compensation... Coupang 'beleaguered' due to burning legal risks

■Coupang U.S. shareholders also file class action lawsuit
“Shareholder value is damaged by delayed disclosure.”
The issue is whether or not it violates SEC regulations.
Consumer lawsuits likely to have a big impact

Coupang's personal information leak situation spread into a shareholder class action lawsuit in the United States. While the focus has been on consumer class action lawsuits surrounding personal information infringement, this time, even shareholders who raise issues about violation of disclosure obligations and damage to shareholder value have taken legal action. There are evaluations that cracks are appearing in Coupang's defense logic, which has argued that "there is no problem under U.S. law" regarding delayed disclosure.

According to related industries on the 21st, the key issue in this shareholder class action lawsuit filed in the U.S. District Court for the Northern District of California is that Coupang Inc, Coupang's parent company, failed to disclose the incident in a timely manner even after being aware of it, rather than the personal information leak itself. The plaintiff claims that Coupang only described cyber security risks at the level of ‘potential risk’ through quarterly reports (Form 10-Q), etc., but in reality, a large-scale personal information leak by a former employee had already occurred. As a result, investors made investment decisions based on distorted information.

With this lawsuit, whether Coupang violated the disclosure regulations of the U.S. securities authorities is expected to emerge as a major issue. The U.S. Securities and Exchange Commission (SEC) requires disclosure within 4 business days when a serious cybersecurity incident occurs, but the plaintiffs believe that Coupang did not fulfill its obligation to disclose to the U.S. SEC within 4 business days from November 18, when it became aware of the incident. In relation to this, Coupang has maintained its position that “the personal information leak issue is not serious.” Coupang CEO Harold Rogers also said at a hearing held at the National Assembly on the 17th, “This matter is not classified as a serious incident by US standards, so there is no obligation to disclose to the SEC.” However, due to this shareholder class action lawsuit, Coupang's judgment itself has become subject to verification by the court. There is a greater possibility that the issue of whether a company can unilaterally judge the ‘gravity’ of an accident, or whether it should be judged from the investor’s perspective, will be dealt with in earnest in court.

This lawsuit is also noteworthy in that it is different in nature from existing consumer class action lawsuits. While consumer class action lawsuits contend with a company's violation of its personal information protection obligations and invasion of privacy, shareholder class actions take issue with stock price declines and investment losses caused by the company's failure to disclose, financial information, and internal control. The underlying law is also the U.S. Securities and Exchange Act, not the Consumer Protection Act. An official from Daeryun Law Firm said, “In the case of a shareholder class action lawsuit, it can not only lead to the burden of a large settlement amount, but also lead to management liability issues and an SEC investigation, which can cause an immediate blow to corporate management.”

In addition, there is an analysis that Coupang's legal burden is increasing as a consumer class action lawsuit is simultaneously underway. Previously, SJKP, the American branch of Daeryun Law Firm, officially filed a consumer class action lawsuit against Coupang Inc in the New York Federal Court on the 8th of this month (local time), and the number of participants in the lawsuit was reported to have reached about 2,000 in four days. In Korea, a number of law firms, including Chungcheong Law Firm and Jihyang Law Firm, have filed class action lawsuits against Coupang.

Seong Woo-rin, a lawyer at Dae-kyung Aju Law Firm (Limited), said, “In Korea, a consumer class action lawsuit for damages from personal information leakage and in the United States, a shareholder class action lawsuit for a decline in stock prices are underway at the same time. In the case of shareholder lawsuits, the structure is to claim compensation for the decline in the value of stocks held, so there is a possibility that astronomical damages will be calculated on a much larger scale than the damage from personal information leakage.” He added, “As the stock price has actually fallen, there is a possibility that the shareholders will win the lawsuit. If the shareholder class action lawsuit and the consumer class action lawsuit are combined, Coupang can be seen as having entered a significant risk phase from a legal and financial perspective.”

Reporter Lee Yong-seong (utility@sedaily.com)

[View full article]
Astronomical compensation in case of loss... Coupang 'beleaguered' due to burning legal risks (Shortcut)