In 2009, a certain savings bank (“S Savings Bank”) issued subordinated bonds (the “Subordinated Bonds”).  Subsequently, the Financial Services Commission designated it as an insolvent financial institution and issued a management reform order, which included the suspension of its business.  Eventually, bankruptcy proceedings were commenced against S Savings Bank in around 2011, and the representative director of S Savings Bank was indicted for financial statement fraud and eventually found guilty.

The holders of the Subordinated Bonds instituted a lawsuit seeking return of the purchase price that they had paid for the Subordinated Bonds or otherwise the payment of damages of an amount equal to such purchase price against (i) S Savings Bank and its accounting firm (“D Accounting Firm”), S Savings Bank’s outside auditor, for financial statement fraud committed by S Savings Bank, (ii) the Financial Supervisory Service (the “FSS”) for failure to properly supervise the financial soundness of S Savings Bank and (iii) the government of the Republic of Korea (the “Government”) as the principal which delegated supervisory authority to the FSS.  Recently, the Seoul Central District Court, as the court of first instance, rendered a decision as follows:

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In the foregoing case, the court ruled on certain questions of critical importance in connection with liability for damages.  Particularly, the following holdings of the court are noteworthy:

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