Aiming to protect investors and to maintain a fair, organized and efficient securities market, on July 18, 2017, Law 5,810/17 was enacted to replace Law 1,284/98 “On the Securities Market” (Del Mercado de Valores) and, among other things, to effectively prevent and punish wrong conducts in the securities market by establishing administrative and criminal sanctions.
A. Administrative Sanctions
They can be classified in low, severe and very severe. The affected companies along with their directors, administrators, corporate comptrollers, risk raters and securities operators have to answer for the same (art. 183). In this trend, the National Securities Commission (Comisión Nacional de Valores or “CNV”) is able to apply sanctions such as: reprimands, fines of up to 200 minimum salaries (approximately PYG 400 million or USD 70,000); suspension or ban to perform as administrator or comptroller of supervised entities; prohibition to publicly offer securities for up to two years or definitively; and cancelation of the license to participate in the securities market (art. 195).
(i) General Misconducts (Art. 184)
The following are considered general misconducts in the securities market: a) Mishandling information and records; b) Lacking reports of independent external auditors; c) Obstructing inspections and supervisions of the CNV; d) Breaching rules regarding privileged or confidential information or the duty of secrecy; e) Carrying out activities outside a company’s exclusive purpose; f) Carrying out activities supervised by the CNV without a license; g) Not submitting on time information required by the CNV; h) Failing to comply with CNV’s observations or warnings; and i) Failing to report essential facts to the CNV.
(ii) Specific Misconducts
On its side, articles 185 to 192 set forth specific misconducts within the securities market.
In this way, the following are misconducts for securities issuers: a) Distorting free price formation or not transferring property of negotiated securities; b) Not submitting on time information required by the CNV; c) Not submitting to CNV the contract with its external auditors; d) Lacking continuous risk rating reports or enough reserves; e) Providing CNV with incorrect, incomplete or inconsistent information; f) Not submitting CNV relevant information on situations that may affect the prices of securities issued; and g) Failing to communicate to their shareholders and corporate comptrollers sanctions of CNV when this was ordered.
Moreover, the following are misconducts of stock exchange markets: a) Negotiating unregistered securities or suspending or excluding their negotiation without cause; b) Internal audit failures; c) Having assets below the minimum requirements for at least six months; d) Distributing Dividends; e) Failing to properly register operations; f) Calling-off tradings without a cause; and g) Lacking the required guarantees.
Besides, the following are misconducts for intermediaries, such as representatives, financial advisors and other dependents of stock brokerage houses: a) Buying or selling securities on their own account; b) Operating outside the legal limits; c) Performing operations and services incompatible with legal limits; d) Failing to deliver securities issued securities or to pay securities bought; e) Negotiating non-registered securities; f) Having assets below the minimum requirements for at least six months; g) Failing to properly register operations and clients; h) Lacking the required guarantees; i) Exceeding operational margins and limits; and j) Issuing false or incorrect certificates.
Also, the following are misconducts for external auditors: a) Failing to properly perform audits; b) Issuing reports contradicting the obtained data; c) Accepting audits work beyond their capacity; d) Lacking documents to support audits performed; and e) Issuing incorrect records or documents.
Additionally, the following are misconducts for risk rating agencies: a) Failing to perform ratings properly and on time; b) Working with conflicts of interests; c) Issuing reports that contradict the obtained data or without evidentiary support; d) Failing to comply with obligations under Law 3,899/09 “On Risk Rating Agencies”; e) Failing to supply data required by CNV; and f) Issuing incorrect records or documents.
Equally, the following are misconducts for clearing houses: a) Not complying with contractual obligations; b) Lacking the required guarantees; c) Failing to perform functions imposed by law; d) Having assets below the minimum requirements for at least six months; e) Not complying with operational rules established by regulations or by their own bylaws.
Moreover, the following are misconducts for fund management companies: a) Performing activities outside the scope of their exclusive corporate purpose; b) Executing prohibited acts or operations, or without the pertinent authorization or without considering the applicable requirements; c) Not communication information regarding their directors or shareholders to the competent authorities; and d) Having administrative, accounting or internal control deficiencies.
Besides, the following are misconducts for representatives of securities holders: a) Not complying with legal obligations; b) Not communicating relevant facts to the CNV; c) Accepting the appointment as representative with conflicts of interests; d) Not complying with rules and proceedings of the stock market; and e) Omitting due care and diligence.
Finally, the following are misconducts for depositary entities: a) Breaching contractual obligations; b) Failing to properly record operations; c) Issuing incorrect documents or certificates; d) Failing to perform their functions or carrying out prohibited acts; e) Having assets below the minimum requirements for at least six month; f) Lacking care and diligence when clearing and liquidating operations; g) Infringing operative norms; h) Lacking the required guarantees and insurances; and i) Security failures in their installations and systems.
B. Criminal Penalties
Under article 226, the following conducts are punished with up to three years of imprisonment or fine: a) publicly offering unregistered securities; b) acting as stock exchange market, intermediary, external auditor or risk rater without registration; or c) violating obligations regarding privileged or confidential information.
Furthermore, the following conducts are sanctioned with up to five years of imprisonment or fine: a) Providing false information to the CNV, to a stock exchange market or to the public under regulations of the securities market; b) The issuance of false certificates of transactions by administrators or representatives of stock exchange markets; c) The issuance of false certificates regarding transactions by representatives of securities brokers or registration of transactions without transfer of securities by the same; d) The issuance of false reports or data by auditors to obtain a license to publicly offer securities, a license to issue securities or tax incentives; e) Performing securities transactions to stabilize, set or artificially modify prices; f) False declarations regarding issuances of securities made by directors, administrators or managers of securities issuers; and g) spreading false information. Additionally, the person found liable can be banned for five to 10 years from becoming director, manager, administrator, auditor, rater-adviser or liquidator of a corporation or any other legal entity.
Finally, if the bankruptcy of a securities’ intermediary due to fraud prevents its commissioning party from performing operations, the person can be punished with two years of imprisonment or a fine (art. 229).