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June 2017

CVM’s Public Hearing – Proposal of a new administrative procedure to optimize judgements and punishments in cases with low degree of complexity

CVM punishes President of publicly held corporation for public communication during the quiet period

_ CVM’s Public Hearing – Proposal of a new administrative procedure to optimize judgements and punishments in cases with low degree of complexity

The Brazilian Securities and Exchange Commission (CVM) submitted for a public hearing the draft of a Resolution that establishes a simplified punitive administrative procedure. The resolution also is intended to amend CVM Resolution 538 and revoke CVM Instruction 545.

According to CVM’s President “the main purpose of the new procedure is to optimize the sanction activity performed by the CVM. The Resolution’s draft intends to simplify the process of verification of responsibilities arising from certain violations which, due to their complexity degree, do not require a regular production of evidence. Moreover, the new procedure also preserves the separation between power of investigation and decision, reserving the performance of the latter to the CVM Board, in line with the institutional model adopted by the institution.”

In this sense, the new procedure should replace today’s “fast track” procedure in a more balanced way, allowing a faster pace of actions and trials, without compromising the defense of the accused.

The main difference between the new administrative procedure and the ordinary procedure is the fact that, after the defense presented its argument, a report is prepared by the CVM’s Superintendence responsible for the charges. The report shall contain (i) a summary of the prosecution and the defense; (ii) the main events in the progress of the process; and (iii) analysis of the arguments for defense and prosecution.

In the proposed new administrative procedure, the defendants are entitled to express their opinion on the report before the trial of the punitive administrative procedure by the collegiate. In addition, the reporting director has the faculty to adopt the report on his reasonings and all other members of the collegiate may also reason their votes based on the same document.

In this context, the proposed draft has exhaustively listed the hypotheses of less complex infractions under the new procedure, such as non-compliance with deadlines and document submission.

In line with the main scope of the proposal, it was stipulated the following deadline: 60 days for the report to be drawn up by the prosecution and 90 days for the reporting officer to conduct the proceedings.

Another proposed change to the regulation is that the new administrative procedure will be judged in public session, the defendant or his legal representative have the right to oral hearing, and there are no limits to the penalties that can be applied by the collegiate.

The CVM hopes that the new procedure relieves the collegiate which would be able to focus on more complex cases. According to CVM’s survey about 30% of the cases judged in 2015 and 2016 would fit the new procedure.

THE SUGGESTIONS AND COMMENTS TO THE MINUTES OF DELIBERATION ESTABLISHING THE SIMPLIFIED PUNITIVE ADMINISTRATIVE PROCEDURE MUST BE SUBMITTED TO THE CVM, IN ACCORDANCE TO THE SUPERINTENDENCY OF MARKET DEVELOPMENT, UNTIL JUNE 16th.

The draft Public Notice for the Public Hearing is available in Portuguese at CVM’s website below:

http://www.cvm.gov.br/export/sites/cvm/audiencias_publicas/ap_sdm/anexos/2017/sdm0217edital_e_minuta.pdf

_ CVM punishes President of publicly held corporation for public communication during the quiet period

CVM condemned the President of a publicly held corporation to the payment of a fine in the amount of RS200,000.00 for speaking to the media during the quiet period.

The President of the company, at a company-sponsored event held during the period of analysis by the CVM of the company’s primary and preferred shares, made a declaration regarding the benefits that his company would be achieved by merging with another company, which were immediately posted on high visibility media websites.

ACCORDING TO THE REPORTING DIRECTOR, IT IS OBVIOUS THAT THE PRESIDENT DECLARATIONS’ HAD THE POTENTIAL TO INFLUENCE POTENTIAL INVESTORS IN THE IPO, CLEARLY OFFENDING THE QUIET PERIOD SET FORTH IN ARTICLE 48 OF CVM INSTRUCTION 400.

The CVM’s decision can be accessed in Portuguese at the CVM website in the link below:

http://www.cvm.gov.br/noticias/arquivos/2017/20170425-1.html#oi

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