CONTENTS
- 1. The Client Who Requested Assistance in a Claim for Damages
- - Dispute Over Incomplete Sale Raised
- 2. Statutes Relating to a Claim for Damages and Incomplete Sale
- 3. Assistance for Defending Against a Claim for Damages
- - Review of the Sales Procedures and Internal Documents
- - Analysis of the Cause of Loss and Scope of Liability by Investor
- 4. Result of Assistance in a Claim for Damages: "Mitigation"
- - If You Are Facing Litigation
1. The Client Who Requested Assistance in a Claim for Damages
The client, against whom a claim for damages was filed, requested assistance from a corporate specialist attorney to defend against a class action that was brought on the ground that the explanation had been insufficient during the process of selling the product to some investors.
Dispute Over Incomplete Sale Raised
The client is a domestic securities company, and an issue arose during the process of selling structured products to some retail investors.
Although the level of financial understanding and investment experience differed among investors, it was pointed out that the individual explanation regarding the product structure and the possibility of loss had been insufficient.
Some investors filed a class action for damages on the basis of unexpected losses.
Although the client had faithfully complied with its internal procedures and product sales regulations, there were instances in which an employee failed to fully explain matters to investors during some consultations, and the investors interpreted this expansively as the responsibility of the company as a whole.
Accordingly, the client requested help from a corporate specialist attorney in order to respond to the class action for damages.
2. Statutes Relating to a Claim for Damages and Incomplete Sale
Incomplete sale refers to conduct in which a financial institution, while selling a financial product to a customer, fails to sufficiently explain important information such as the product structure, the possibility of profit or loss, and the principal risks.
In such cases, investors may incur unexpected losses, and the financial institution may bear liability for damages.
▶ Criteria for calculating the amount of damages (Article 48(2) of the Financial Investment Services and Capital Markets Act)
In other words, the amount of damages is presumed to be the amount obtained by deducting, from the total amount of money the investor paid in acquiring the financial product, the amount recoverable through the disposal or recovery of the product.
Through this, the scope of compensation is determined on the basis of the loss actually incurred by the investor.
If a product unsuited to the investor's investment disposition or financial situation is sold, or a product inappropriate relative to the investor's level of understanding is sold, liability for damages under Article 64 of the Financial Investment Services and Capital Markets Act arises.
Case law holds that where such a violation, combined with a breach of the duty to explain, causes significant loss, tort liability under Article 750 of the Civil Act may also be imposed.
▶ Article 750 of the Civil Act (Definition of Tort)
3. Assistance for Defending Against a Claim for Damages
The issues in this claim for damages were as follows.
ㆍ Whether an explanation deficiency by some employees expands into liability for damages of the company as a whole
ㆍ Whether reasonable criteria, such as the investor's own responsibility, the investment amount, and market fluctuations, were applied in calculating the amount of damages
The corporate specialist attorney established a systematic review and analysis and a defense strategy for the damages in line with these issues.
Review of the Sales Procedures and Internal Documents
The corporate specialist attorney closely analyzed the client's investor guidance materials, product explanation records, and internal training and review processes.
Through this, the attorney proved that the company had complied with the legal and institutional procedures at each stage, and organized materials capable of supplementing any procedural gaps or omitted parts.
Through this, the attorney provided assistance to clearly demonstrate that the company as a whole had sufficiently operated investor protection mechanisms.
Analysis of the Cause of Loss and Scope of Liability by Investor
In order to calculate the amount of damages, the corporate specialist attorney went beyond a simple analysis of the loss amount and comprehensively reviewed the product structure, the market environment at the time of investment, and the investors' state of information reception and decision-making process.
Through this, the attorney proved that the losses resulted from individual investors' own decisions and market factors, and developed substantive reasoning to ensure that liability for damages would not be unnecessarily expanded.
In addition, reflecting the characteristics of each investor and the circumstances of contract conclusion, the attorney established a strategy to reasonably calculate the scope of legal and practical liability.
4. Result of Assistance in a Claim for Damages: "Mitigation"
With the assistance of a finance specialist attorney, the court dismissed most of the claims for damages and substantially mitigated the partially recognized amount of damages as well.
As a result, the financial burden on the securities company was minimized, and the expansion of an individual employee's explanation deficiency into the liability of the company as a whole was also prevented.
If You Are Facing Litigation
When a matter becomes embroiled in a mis-selling dispute, a systematic response should be carried out from the early stages of the case, and the following approach is specifically required.
ㆍ Analysis of the cause of loss and the scope of liability: Reviewing the investor's investment objectives, experience, and transaction timing to clarify the cause of the loss and to reasonably assess the scope of liability
ㆍ Establishment of a strategy to defend against the damages amount: Designing a reasonable standard for the compensation amount and a defense rationale by comprehensively considering factors such as the investment amount, the timing of the loss, and market fluctuations
In mis-selling cases, the circumstances of each investor and the structure of the product are complex, making it difficult to accurately determine the scope of legal liability and the magnitude of the damages.
Therefore, it is important to systematically prepare evidence collection, a review of the scope of liability, and a strategy to defend against the compensation amount with the assistance of specialists.
Our firm has formed a TF of attorneys specializing in finance who have handled cases in the financial field over many years, and it provides practical assistance such as evidence collection, review of the scope of liability, and the design of a strategy to defend against the compensation amount.
If, as in the above case, you are facing litigation and need legal assistance, please feel free to request help at any time through a 🔗Legal Consultation Booking.
This content is based on actual case studies of Daeryun Law LLC with some adaptations, and the copyright belongs to our firm.
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