Article 181a of the Penal Code imposes criminal liability on an individual who wilfully provides misleading information or omits to provide a fact relating to securities offering, securities listing, securities trading, securities business, securities registration or deposit of securities, payment or settlement of securities and causes material damages.

In Circular 10/2013, the courts, the Ministry of Police and the Ministry of Justice has provided certain clarification to the sweeping scope of Article 181a of the Penal Code. However, the clarification in Circular 10/2013 seems to make it easier for the enforcement authorities to impose criminal liability on any for wilful misrepresentation or omission in securities offerings and related activities. In particular,

• Criminal liability for wilful misrepresentation or omission can be imposed on not only public offering of securities but also private placement of securities. It is not clear why the Penal Code imposes criminal liability for wilful misrepresentation or omission in a private placement. Usually, the parties to a private placement transaction are more sophisticated than those in a public offering and have a chance to study the target company by themselves. Therefore, the legal protection afforded to parties to a private placement transaction need not be as strong as those given to investors in a public offering of securities.
   
• Wilful misrepresentation is defined to mean a person disclosing untrue information relating to, among other things, operation of a public company, a company issuing securities, a listed company. Unlike the definition of “wilful crime” under the Penal Code, Circular 10/2013 does not clearly require the enforcement authorities to prove that the person disclosing untrue information has known (or should have known) that the disclose information is untrue. Nor does Circular 10/2013 require proof of illegal intent by that the person disclosing untrue information.

• Omission of fact is defined to mean a person who omits to disclose or wilfully disclose incomplete information in the securities offering application, listing application, or securities trading. A literal reading of this definition will also cover negligent omission of information by the issuer both in a public offering or private placement.

• The persons who may be subject to criminal liability for wilful misrepresentation or omission under Article 181a of the Penal Code includes, among others, (1) Chairman, Board members, General Directors, Chief Finance Officer or Chief Accountant, legal representatives of the issuer or listed organisation, and (2) legal representatives of the bookrunners, underwriters, auditors and the persons directly providing services to the issuer or listed organisation.