_The July 2024 edition of our Newsletter has the following highlights:
– CVM disqualifies and imposes fines on individuals accused of insider trading and violation of confidentiality duty of manager
– CVM decision on non-disclosure of relevant fact regarding bankruptcy
– Amendment of the Brazilian Civil Code
_ CVM disqualifies and imposes fines on individuals accused of insider trading and violation of confidentiality duty of manager
On July 2, 2024, the Board of the Brazilian Securities and Exchange Commission (“CVM”) judged Administrative Sanctioning Process No. 19957.001830/2021-16 against a former manager and former financial advisors of a listed company for (i) the alleged use of insider information in transactions involving shares issued by the Company, in violation of Article 155, §4, of Law No. 6.404/76 (“Brazilian Corporate Law”), together with Article 13, §1, of CVM Instruction No. 358/2002 in force at the time of the facts (current CVM Resolution No. 44/2021), and (ii) the alleged transmission of relevant information not yet disclosed, in violation of the duty of confidentiality set forth in Article 155, § 1, of the Brazilian Corporate Law, together with Article 8 of CVM Instruction No. 358/2002.
In a brief context of the case, the Superintendence of Relations with Companies (“SEP”) presented its accusation alleging that a former board member together with former financial advisors of the company purchased shares using undisclosed relevant information related to the company’s project to migrate to the Novo Mercado segment of B3 S.A. – Brasil, Bolsa, Balcão.
The former board member proposed a Commitment Agreement, in which he offered to pay CVM the amount of R$42,597.00. The former financial advisors presented a joint proposal in which they also proposed the payment of the total amount of R$42,597.00. In return, the Commitment Agreement Committee suggested enhancing the proposals made, increasing the payment by those responsible to a total of R$1,647,250.00.
After several rounds of rejection of the terms presented by the Commitment Agreement Committee, the accused accepted the proposal put forward by the Committee; however, it was determined that acceptance at that time would no longer be appropriate and convenient.
Due to these conditions, the CVM’s Board ultimately decided:
- Unanimously, to condemn the board member of the Company at the time of the facts to a temporary disqualification for a period of 60 months from holding positions as manager or member of the fiscal committee (Conselho Fiscal) of listed companies, of an entity in the distribution system, or of other entities that depend on authorization or registration before CVM, for violation of Article 155, § 1, of the Brazilian Corporate Law, in conjunction with Article 8 of CVM Instruction 358/2002 and, in the view of Director João Accioly, solely for violation of Article 155, § 1, of Law 6.404.
- By majority, to condemn the former financial advisors to a fine of R$200,000.00, each, for violation of Article 155, § 4, of the Brazilian Corporate Law, in conjunction with Article 13, § 1, of CVM Instruction 358/2002.
The report and vote of the Reporting Director, as well as the voting statements of the other Directors, can be accessed in Portuguese through the following links:
_ CVM decision on non-disclosure of relevant fact regarding bankruptcy
On June 13, 2024, CVM’s Board judged Administrative Sanctioning Process No. 19957.015040/2022-07, which sought to ascertain the potential responsibility of the then CEO of a listed company for violating Article 157, §4, of the Brazilian Corporate Law and Article 3, §1 of the then applicable CVM Instruction No. 358/2002, due to the failure to disclose a relevant fact regarding a court ruling that extended the effects of another company’s bankruptcy to the aforementioned listed company.
The process originated from CVM Administrative Process No. 19957.009129/2021-45, also initiated by the SEP, which aimed to analyse the conduct of the managers of the company concerning the absence of disclosure of a relevant fact related to the bankruptcy declared by the Court.
In summary, after being notified by CVM regarding the court ruling, the company published a market announcement stating that it had not previously disclosed the declaration of bankruptcy as the court decision lacked legal grounds, as it had not yet become final, and asserting that it would make every effort to reverse the decision. One year later, the company published a relevant fact informing of the dismissal, without merit ruling, of Rescission Action No. 2285273-94.2021.8.26.0000 (“Rescission Action”), which aimed to annul the final decision resulting from the bankruptcy process.
In light of this scenario, CVM sent a letter to the manager and controlling shareholder of the company at the time of the events, requesting that he respond concerning the facts and the compliance with the duty to inform as provided in Article 157 of the Brazilian Corporate Law. In response, the then-manager and shareholder stated that he was aware of the facts but had not disclosed them under the guidance of the company’s legal advisors, who perceived a strong possibility of reforming the decision.
Considering these facts, SEP concluded that the then-manager and controlling shareholder was aware of the bankruptcy declaration of the company, and there was no doubt regarding the relevance and materiality of the information about the extension of the bankruptcy effects to the company. Furthermore, according to SEP’s understanding, the omission of the then CEO of the company could not be justified based on advice from the company’s legal advisors under the premise of a brief reform of the ruling.
After analysing the case and following the vote of Reporting Director Otto Lobo, CVM’s Board unanimously decided to impose a fine of R$460,000.00 on the manager for the charges presented.
More information about the process can be accessed in Portuguese through the following links:
– Amendment of the Brazilian Civil Code
On July 1, 2024, Law No. 14.905 was enacted, which establishes the monetary correction index for non-compliance with financial obligations, determines the rate of default interest, and excludes the application of Decree-Law No. 22,626/1933 (also known as the Usury Law” in certain legal relationships. The provisions (added or modified) will come into effect 60 days after the publication of the law, that is, on August 31st, 2024.
In practical terms, in contracts or other instruments that regulate any legal relationship that do not contain the monetary correction index agreed upon by the involved parties or that is not defined in a specific law, the new law alters Article 389 of the Civil Code to adopt the Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo – IPCA). Moreover, the new wording of Article 406 of the Civil Code establishes that the remuneration interest in loan contracts for economic purposes (Article 591) and the default interest, in the absence of contractual agreement or specific legal provision, will be equivalent to the SELIC rate, with the deduction of the IPCA.
Finally, Article 3 of the new law specifies that the Usury Law does not apply to the following operations:
- between legal entities;
- represented by credit instruments or securities;
- contracted with:
- financial institutions and other institutions authorized by the Central Bank of Brazil;
- investment funds or clubs;
- leasing companies and simple credit companies;
- public interest civil society organizations that grant credit as provided in Law No. 9,790/1999;
- conducted in the financial, capital, or securities markets.
To access the content of Law No. 14.905, dated June 25, 2024, in Portuguese please visit:
https://www.planalto.gov.br/ccivil_03/_ato2023-2026/2024/lei/L14905.htm
