In force since 1st September, CVM Instruction 607 (ICVM 607)
deals with investigations into administrative infractions,
procedure in enforcement proceedings, application of penalties,
and administrative settlements and leniency agreements, which
are provided for in Law 13.507/2017.
ICVM 607 brings together rules on enforcement proceedings,
administrative settlements, and access to the record of
proceedings, which were formerly governed by different
Instructions. In addition, legal provisions that were applied when
the CVM’s specific regulations were silent are included in the
Instruction, eliminating doubts about their applicability in the
context of proceedings before the CVM.
In addition to procedural rules, ICVM 607 makes important
changes to enforcement proceedings. One of them is that the
CVM’s branches may now opt not to bring enforcement
proceedings. In making the decision, the following elements
must be taken into consideration: (i) the conduct’s seriousness
or repercussions, (ii) the
amount of money involved,
(iii) the extent of losses
caused to investors and
market participants, (iv) the
conduct’s impact on the
credibility of the capital
markets, (v) prior offences by
the persons involved, (vi) the
good faith of the persons
involved, (vii) steps taken to
correct the infraction, and
(viii) compensation paid to
investors suffering losses. The
decision not to bring
enforcement proceedings can
be appealed if the decision is
not supported by good reasons, or is contrary to the
predominant position in decisions by the CVM’s directors.
Following the line taken in the CVM’s more recent precedents,
ICVM 607 provides that in the event of a tie in a judgment
session, the understanding of the law most favorable to the
accused party should prevail, in accordance with the principle
in dubio pro reo. This is an important change, particularly given
that the National Financial Systems Appeal Council – CRSFN
(Conselho de Recursos do Sistema Financeiro Nacional), which
hears appeals from CVM decisions, has not adopted the same
practice.
Under Law 13.506/2017, one of the limits on fines leapt from
BRL 500,000 to BRL 50 million. ICVM 607 now groups offences
according to their seriousness, and sets out the maximum base
penalty for each group. It is also establishes parameters for
fixing penalties: the CVM’s Commissioners will decide on the
base penalty, which can be increased or decreased in function
of aggravating or mitigating circumstances.
As examples of aggravating circumstances, ICVM 607 lists the
systematic practice of the offending conduct, the use of fraud,
sham or ruse to commit the infraction, significant losses
resulting from the infraction, violation of fiduciary duties of
office in committing the infraction, and concealment of
evidence. Mitigating
factors include
confession of the
infraction, the offender’s
lack of prior infractions,
the offender’s good
faith, and the existence
of a compliance
program certified by a
government agency or
a recognized private
entity.
Fines can be increased
by up to 25% for
each aggravating
circumstance and
reduced by up to 25%
for each mitigating
circumstance. The
penalty imposed cannot
be a simple warning
when the infraction
would also constitute a
crime.
Another important aspect
of ICVM 607 are the rules
applicable to leniency
agreements made with
the CVM, which were
introduced by Law
13.506/2017. Under these
leniency agreements,
which the Law refers
to as “supervision
agreements” (acordos
administrativos em
processo de supervisão),
the CVM may exempt
cooperating parties from
liability, if previously unknown facts are brought to light through
the party’s cooperation, or grant a reduction ranging from 2/3
to 1/3 of the applicable penalty, if an investigation is already
underway. A Supervision Agreement Committee is responsible
for negotiations on the agreement, and a leniency agreement
proposal may be made at any time during an enforcement
proceeding prior to the commencement of judgment. Once
made, the terms of the leniency agreement will be kept
confidential until the agreement is signed.
After ICVM 607 was released, the CVM announced that the
amounts to be paid under administrative settlements (termo
de compromisso) will also be based on the table of base
penalties attached to the Instruction. Accordingly, it is possible
that amounts payable under administrative settlements may
increase to bring them in line with the parameters established
in ICVM 607.
This article belongs to BMA Review 66. Click here to download and read the whole issue.