Several huge corruption scandals involving the relationship between politics and companies in general have brought attention to the relevance of the Securities Market in Brazil, especially with a new Federal Law 13,506/2017 that was approved on November 14, 2017.
The Securities and Exchange Commission of Brazil (CVM) was created by the Federal Law 6,385/76 in 1976, almost at the same time as Brazil’s Corporation Law was published.
The new Federal Law now innovates CVM’s administrative proceedings and intensifies the crime of insider trading.
The current mandate of CVM is to protect the holders of securities and the investors of the market against the use of relevant information not disclosed and ensure the observance of fair trade practice in the securities market. CVM Instruction 358/2002 also defines in general terms that prior to the disclosure to the market of a material act or fact occurring in the company’s business, it is prohibited to negotiate with securities of your company.
In Brazil, CVM is popularly known as “The Securities Police”, due to the high level of regulations published and their proper administrative investigation procedures. It is important to recall that CVM can only apply administrative measures, such as penalties, suspension, and others.
From the criminal perspective, the article 27-D of the Federal Law 6,385/76 describes the misuse of Inside Information, which is the use of relevant information that has not yet been disclosed to the market, capable of providing an undue advantage by negotiating, on behalf of itself or third parties, securities. The penalty is imprisonment, from one to five years, and a fine of up to three times the amount of the illicit advantage obtained as a result of the crime.
Here are some of the most relevant changes:
- The maximum amount of CVM administrative penalty will increase from BRL 500,000 to BRL 50 million, an increase of 100 times the original fine limit amount.
- New paragraphs have been included in a revised Art. 27-D:
- Art. 27-D. Use relevant information that has not yet been disclosed to the market, of which it has knowledge, capable of providing, for itself or for others, an undue advantage by negotiating, on behalf of itself or third parties, securities:
- First Paragraph – The same penalty is imposed on anyone who transfers confidential information related to a material fact to which he or she has had access because of a position or position that occupies the issuer of securities or because of a commercial, professional or trust relationship with the issuer.
- Second Paragraph – The penalty is increased by one third if the agent commits the crime provided for in the caput of this article using relevant information of which he has knowledge and of which he must maintain secrecy.
With the new Federal Law 13,506/2017, we realize that the Securities Market is becoming even more regulated and closer to the facts that impact the local and/or international economies, probably with the clear objective of bringing more confidence to investors and encouraging fair market practices. It is imperative to keep in mind that with the hardening regulations, CVM should handle its administrative proceedings even more carefully and with the expected mastery.
Allékos Genadopoulos was an associate at Pacheco Neto Sanden Teisseire Law Firm.