12/3/2021
The Board of the Brazilian Securities Commission (CVM), in a trial session held on November 23, accepted a settlement proposal presented by the founding shareholder and Chairman of the Board of Directors of a publicly held company, engaged in the food sector, for payment of approximately R$ 20 million in return for the collective damage caused to the capital markets. As a result, the corresponding administrative proceeding was concluded, which was brought by CVM to assess evidence of insider trading practice in acquisitions performed by the Defendant at the Brazilian Stock Exchange – B3, prior to the issuance of a material notice (fato relevante) that latter officially disclosed the acquisition of a foreign company by one of the subsidiaries of the Brazilian company.
During the applicable lock-up period – due to the existence of material information not yet officially disclosed to the market through the material notice – the Defendant would have carried out, in his name and on behalf of his wife, 23 operations for the acquisition of common shares issued by the company. Also in accordance with the investigation held by CVM, the Defendant would have obtained a potential gain of R$ 6.7 million, because of the expressive valuation of the shares after the disclosure of the material notice.
The Defendant filed his defense on April 21, 2021, when he also expressed his intention to enter a term of commitment for the payment of R$ 5 million. CVM’s Board rejected this initial proposal on October 5, 2021, considering the conduct under investigation to be serious, especially due to the strategic position of the Defendant in the company.
The Defendant presented a new proposal for a term of commitment on November 5, 2021, this time in the amount of R$ 20.2 million, corresponding to 3 times the value of the potential gain, indicated in the investigation.
On November 23, 2021, the President of CVM, Marcelo Barbosa, recognized the inexistence of legal obstacles to the execution of the proposed settlement since: (i) insider trading is an instant illegal act, the completion of which occurs with the use of privileged information; and (ii) the Defendant assumed the commitment to pay a financial compensation to cover the collective damages caused to the capital markets.
Under the basis that there was a significant increase in value in the proposal and that there was equivalence with the maximum amounts usually paid by parties in cases of this nature, CVM’s president voted for the acceptance of the proposed term of commitment. Unanimously, following the President’s vote, CVM’s Board decided to accept the proposed term of commitment presented.
There are several cases judged by the CVM Board regarding the use of privileged information. CVM’s consolidated understanding on the subject was recently reflected in CVM Resolution No. 44, of August 23, 2021, which amended CVM Instruction No. 358.
The lack of timely disclosure of a material notice (fato relevante) is also punishable by the CVM, even if insider trading practice is not characterized or there is no repercussion on the quotation of the underlying securities.
In this sense, in the same trial session, the CVM’s Board sentenced the Investor Relations Officer of a public bank to pay a fine in the amount of R$170 thousand for late publication of a material notice. The infringement resulted from news published in a large-circulation newspaper about a commercial partnership, disclosed by a material notice two days later, when the partnership was indeed signed. CVM’s Board considered irrelevant the fact that the company’s share price closed with a negative fluctuation on the day when information about the commercial partnership was leaked was considered irrelevant.
Still in the same trial session, the CVM Board rejected settlement proposals in cases involving infringements in the issuance of certificates of real estate receivables (CRI) and debentures.
Our Corporate Law team is available to provide more information and guidance on the subject.
