Hong Kong HSBC Acquitted by Supreme Court of "Naked Short Selling Worth 15.8 Billion Won" Charges

Court: "No evidence they knew they were violating regulations"

Reuters-Yonhap News

Hong Kong-based global investment bank HSBC has been acquitted by the Supreme Court of allegations that its Hong Kong entity engaged in naked short selling worth 15.8 billion won.

The Supreme Court's Second Division, with Justice Oh Kyungmi presiding, dismissed the prosecution's appeal on October 8 in the case against HSBC's Hong Kong entity for violating the Capital Markets Act, upholding the lower court's acquittal. Short selling involves borrowing shares in advance and selling them when a decline in their price is expected, then buying them back at a lower price if the price actually falls and returning them to the lender. In South Korea, short selling without first borrowing the shares, known as naked short selling, is illegal.

In March 2024, three people, including Trader A of HSBC's Hong Kong entity, were indicted on charges of naked short selling 318,781 shares worth 15,784,680,000 won in nine listed companies, including Hotel Shilla, between August and December 2021. HSBC was also put on trial under provisions holding corporations liable alongside individuals. This was the first time anyone had faced a criminal trial for violating restrictions on naked short selling.

However, in February 2025, the court of first instance acquitted HSBC's Hong Kong entity. It found that "in South Korea, the amount of the difference must be determined before short selling, while HSBC had a system that determined the difference after the fact." However, it also ruled that "there is no evidence to establish that the bank employees engaged in naked short selling knowing that they were violating South Korean regulations."

The prosecution appealed, but the appeals court and the Supreme Court both upheld the acquittal. Law firm Kwangjang, which represented HSBC, said the ruling "puts an end to the debate over whether HSBC bears criminal liability for violating restrictions on naked short selling" and "is highly significant in that it sets out guidelines on the circumstances in which naked short selling is subject to criminal punishment."

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