1st ELS-related Court Ruling in Favor of Securities Firm

  • Recent Matters
  • 2010.09.24
Yoon & Yang LLC represented Daewoo Securities in a lawsuit for the restitution of early redemption filed by investors of an equity-linked securities (ELS) product against Daewoo Securities, and received a court ruling against the plaintiffs in May 2010.  The court ruled that if the investors received redemption at maturity, they could not claim for the return of early redemption belatedly.

The court ruled that the contract between the securities firm and the plaintiffs already ended due to redemption at maturity and thus this retroactive lawsuit filed on the assumption of early redemption is legally impossible, which means that if the investors had wanted preserve this claim, they should have raised this issue prior to the date of early redemption.

This ruling provides a meaningful precedent for similar financial cases in the future.  The ruling also means that in a situation where ELS-related civil and criminal disputes are on the increase, a clear court decision that the contractual relationship between a securities firm and investors is terminated through redemption at maturity will cause investors to reconsider their one-sided option-like claim for the return of early redemption.

ELS is a financial product that may yield a positive return if the underlying share price or an equity-based index is higher than the  previously determined level at the maturity date but otherwise it does not guarantee return of the principal or a positive return.  The ELS product of Daewoo Securities guaranteed an 9% return per annum if Samsung SDI’s stock price is over KRW108,500 per share, but the investors filed the lawsuit against Daewoo Securities in August 2009, arguing that Daewoo Securities sold the underlying equity in a great volume and thus Samsung SDI’s share price fell and the investors suffered losses.
#Financial Disputes