The Supreme Court in Seocho-gu, Seoul. [Yonhap]
The Supreme Court in Seocho-gu, Seoul. [Yonhap]

The Supreme Court has finalized a partial ruling in favor of the National Pension Service in its damages lawsuit against Samsung Securities over the 2018 "ghost shares" dividend incident, ordering the brokerage to pay approximately 1.87 billion won ($1.35 million) in compensation.

The Supreme Court's Second Division, presided over by Justice Oh Gyeong-mi, dismissed appeals from both sides Wednesday and upheld the lower court's partial ruling in favor of the National Pension Service.

The court said the damages Samsung Securities must pay are limited to losses the National Pension Service suffered as a shareholder due to the direct market impact of the incident, which caused the company's share price to fall. "Even if additional liability under the Civil Act as an employer of the dividend-processing staff were recognized, it is difficult to see how the scope of damages, or the limitation of liability and its ratio, as recognized by the lower court, would change," the court said.

The incident occurred on the morning of April 6, 2018, when an employee in Samsung Securities' securities management team mistakenly selected "employee stock ownership" instead of "batch transfer deposit" while processing dividend payments. The error caused 2.81 billion shares in a fictitious company — equivalent to 112 trillion won — to be credited to the accounts of 2,018 employee stock ownership association members, instead of the intended dividend of 2.81 billion won, or 1,000 won per share.

Minutes after the error, at around 9:33 a.m., an employee who noticed the mistake posted about it on the company's internal messaging system. At around 9:40 a.m., the business development team posted four notices in the same channel urging staff not to sell the shares, saying the amount credited to employee accounts had been entered in error. At around 9:50 a.m., the company notified its business IT system of the dividend error, asked employees to halt share sales and froze trading orders across all employee accounts.

Despite those measures, 22 employees submitted sell orders for approximately 12.08 million of the erroneously credited shares during a 31-minute window starting at 9:35 a.m. that day. Of those, 16 employees had sell contracts executed for approximately 5.01 million shares. The company subsequently removed all the erroneously credited shares from accounts and purchased them back on the exchange by borrowing shares from institutional investors through the accounts of the employees who had sold them.

Trading volume in Samsung Securities shares had stood at around 500,000 shares the previous Tuesday, with a closing price of 39,800 won. On the day of the incident, volume surged to 20.8 million shares, and the share price fell roughly 11.68 percent from the previous day's close to 35,150 won at around 9:57 a.m.

The National Pension Service, which was a Samsung Securities shareholder at the time, held 11.232 million shares just before the incident and sold a total of 3.574 million shares between April 6 and Sept. 28, 2018.

The Financial Supervisory Service said the incident resulted from accumulated failures in internal controls and IT system management, and announced strict sanctions for violations of the Act on Corporate Governance of Financial Companies and the Electronic Financial Transactions Act. It also referred 21 employees who submitted sell orders despite knowing the shares had been erroneously credited to prosecutors on charges of occupational breach of trust and embezzlement. Those employees were later convicted in criminal proceedings.

In 2019, the National Pension Service filed a lawsuit against Samsung Securities, arguing that the brokerage had violated its duty of care and loyalty to shareholders by allowing shares that could be mistaken for legitimate stock to be generated and circulated — even though no valid share issuance had actually taken place — and that it had aided and abetted the convicted employees' unfair trading activities under the Capital Markets Act.

The National Pension Service sought compensation for the difference between the sale price and the fair market price of Samsung Securities shares it disposed of between April 6 and Sept. 28, 2018, as well as for a portion of the unrealized losses on shares it held during that period.

In August 2024, the first-instance court ruled that Samsung Securities had failed to establish adequate risk management standards and could have prevented the mass sell-off, and ordered it to pay the National Pension Service approximately 1.87 billion won. However, the court found it difficult to conclude that the company had violated its duty of care or loyalty to shareholders, and rejected the claim that it bore employer liability for the actions of the employees who sold the shares.

The first-instance court said Samsung Securities' liability was limited to losses the National Pension Service suffered as a shareholder from the direct market impact of the incident on the company's share price.

The court further held that the scope of compensable share transactions was limited to those actually executed between April 6, 2018 — the day of the incident — and April 10, 2018, the last day the incident directly affected the market. It said the compensable amount was the difference between the price at which the National Pension Service sold its Samsung Securities shares during that period and the fair market price that would have prevailed had the incident not occurred. Claims for losses on shares disposed of after that period, and for unrealized losses on shares held during the period, were dismissed as without merit.

The court also capped Samsung Securities' liability at 50 percent of total damages, citing the circumstances and nature of the incident, the extent of the National Pension Service's losses, and various factors following the incident. It further deducted gains the National Pension Service made by purchasing Samsung Securities shares at below-normal prices between April 6 and April 10, 2018, as a result of the incident.

The appellate court dismissed both sides' appeals in January and upheld the first-instance ruling.


bell@heraldcorp.com