On 10/16/22, the press announced that popular investor Louise Barcy is under investigation by the Securities and Exchange Commission (CVM) regarding the alleged use of privileged information i.e. insider trading. By the way, behavior constitutes a small established fact in the field of administrative sanctions. According to a 2021 survey by the FGV SP Center for Financial and Capital Markets, among the 56 lawsuits adjudicated in 2021, which resulted in 294 accusations against 206 defendants, out of 294 accusations, 15 were insider trading investigations.
Judicially, only in 2016 was the first conviction for the crime, which was established in 2001 by Law No. 10303, which was updated in Law No. 13506, of 2017. The Fifth Panel of the Supreme Court of Justice, unanimously, upheld a sentence of 2 years, 6 months, and 10 years. days in prison, in addition to paying a fine of 349.7 thousand Brazilian riyals, to a former director of financial affairs and investor relations at Saadia Company. In this case, in short, the former manager took advantage of the information about a possible merger between Sadia and Perdigão to buy shares.
The morally reprehensible behavior of those fighting for an ethical market, explored by major cinematic productions of detective fiction or even acknowledged by biographies of controversial names in financial market history, deserves some highlights of how our country’s regulations handle it.
What is characteristic information? It is information that is not public and has material value, that is, it is relevant and therefore confidential, and may have political, administrative, technical, commercial and economic value.1 Pursuant to CVM 44 Chapter 3 decision, even with the exceptions in Chapter 4, it is the duty of the Investor Relations Officer to make available any material act or fact that occurred or relates to its business, as well as to ensure that it is broad and immediate. Distribution, simultaneously in all markets in which these securities are permitted to be traded. It should be noted that publicly owned companies must have a physical act or policy for disclosure of facts (Article 17).
On the other hand, what is insider trading? For CVM, this use has two aspects:
(i) trading in possession of privileged information;
(2) Disclosure of confidential information to third parties (tipping). It should also be noted that the purpose of obtaining an advantage from negotiation is not to be confused with actually obtaining an advantage. In other words, even in cases where the user of the information suffers losses in the transaction, improper use of tokenized information can still be characteristic. Here, usage, in and of itself, brings undue market volatility.
Moreover, it is not necessary to specify the source of the characteristic information. in Art. 13 of CVM Decision 44 lists supposedly relatively classified information promoting a crime, but it must be accompanied by other items.two. Moreover, in Art. 14 is what we call the closed trading period.3
What administrative legislation applies in the case of insider trading? Article 155, § 1, of Law No. 6,404/76 states that unjustified use of privileged information by directors of publicly owned companies is prohibited. Article 155, § 4, in turn, provides that misuse of privileged information is also prohibited to anyone who has access to the relevant information4.
What penalties apply? According to Art. 11 of Law No. 6,385/76, CVM may apply cautionary penalties, fines, temporary disqualification of up to 20 years for holding office or carrying out activities regulated by CVM, suspension of authorization or registration of activities, or temporary ban for up to 20 years for carrying out activities or certain operations or to carry out certain operations in the capital market. In addition, it also began to accept the application of the ban penalty for contracting with official financial institutions and participating in bids (for a period of up to 5 years).
CVM Resolution No. 45/21, which governs the entire administrative procedure, sets out the criteria for calculating the penalty in Article 62. Unless a warning penalty is applied, CVM Collegiate will determine the basic penalty initially, and then apply the aggravating and mitigating circumstances, as well as the reason for reducing the penalty, in that order .
It is important to stress that the administrative process of penalties may not be initiated or suspended if there is a term of commitment by the person under investigation, in accordance with Art. 11 of Law 6.385 / 76 and Chapter Four of Decision 45, due to the public interest. The investigated party must undertake to cease the alleged illegal practice and to remedy the wrongdoing, including compensation for damages.
Finally, in these brief notes, when dealing with insider trading, it is noted that the process of investigating the true meaning of the phenomenon is more complex than it appears, and it is no coincidence that the final and irrevocable state is precisely the state of 2016.
1.1.1 the person who has traded in securities having relevant information not yet disclosed, used such information in said trade; II – Shareholders, directors, members of the board of directors, the financial board and the controlling company itself, directly or indirectly, have access to all relevant information that has not yet been disclosed; III – the persons listed in Clause 2, as well as those who have a business, professional or trust relationship with the Company, when accessing relevant information that has not yet been disclosed, know that it is privileged information; Fourth – the manager who leaves the company with relevant information that has not yet been disclosed uses this information if he trades in securities issued by the company within 3 (three) months of his departure; V – From the moment of initiation of studies or analyzes related to the matter, information about incorporation processes, total or partial division, merger, transformation, any form of company reorganization or business combination, or change in control of the company, including By implementing, changing or terminating the shareholder agreement or the decision to deregister the publicly held company or change the environment or the trading part of the shares it issues; and 6 – Information related to the judicial or extrajudicial recovery request and bankruptcy filed by the company itself is relevant, from the moment the studies or analyzes related to this request are initiated.
2 In the period of 15 (fifteen) days preceding the date of disclosure of the quarterly accounting information and annual financial statements of the company, subject to the provisions of Paragraph 2 of Art. 16 Without prejudice to the provisions of Article 13, the company, the controlling shareholders, managers, members of the board of directors and the financial council are prohibited from conducting any negotiation with the securities issued by the company or referred to, regardless of their knowledge, by these persons, for the content of the quarterly accounting information and the annual financial statements of the company .
3 § 1 A director of a public company must also keep confidential any information that has not yet been disclosed to the market, that has been obtained because of his position and is capable of significantly affecting the prices of securities, it is forbidden to take advantage of the information to obtain, for himself or for others, an advantage by Buying or selling securities. § 2 The official must ensure that the violation of the provisions of (1) cannot occur through subordinates or third parties who trust him. § 3 The person who is injured in the purchase and sale of securities, contracted in violation of the provisions of paragraphs 1 and 2, is entitled to obtain compensation for damages from the offender, unless he was already aware of the information when contracting. § 4 It is prohibited to use relevant information that has not been disclosed by any person who had access to it, for the purpose of obtaining an advantage, for himself or for others, in the stock market. (covered by Law No. 10303 of 2001).