Clarissa Freitas, Rafael Costa Silva and Georgia Schneider

The board of the Brazilian Securities and Exchange Commission (CVM) reviewed, in June, a proposal for a consent order presented by a director of Investor Relations (DRI). The administrative sanctions proceeding (PAS) dealt with the untimely disclosure of a material fact in the context of a renegotiation of the terms and conditions of a proposed corporate merger, involving the company and its controlling shareholder. The disclosure of the relevant fact only occurred after publication on an Internet news portal.

The board of the agency followed a favorable recommendation of the Consent Order Committee or execution of the settlement, with the payment, in a single installment, of R$ 400 thousand to the CVM.

The investigation was initiated by a notice sent by the company's independent director to the Company Relations Bureau (SEP), reporting that the company's management had received a letter from a reference shareholder informing them of:

  • its intention to vote against the merger of a company at a General Meeting of Shareholders; and
  • the existence of negotiations between said reference shareholder and the company's controlling shareholders to adjust the corporate merger proposal.

There was a six-day interval between receipt of the letter sent by the reference shareholder and disclosure of the material fact, during which time the intention to vote against and renegotiation of the terms of the merger were published on an Internet news portal.

When questioned by the Corporate Relations Bureau, the Investor Relations director emphasized:

  • that disclosure of the contents of the letter would go against the company's corporate interest;
  • the information was within the control of the parties and was an ongoing negotiation, and it was doubtful to address it as a relevant fact at that time;
  • that according to experts consulted, there was not yet reason for disclosure;
  • absence of an order for disclosure from the CVM led it to the understanding that it was not necessary to take the information public at that exact moment; and
  • after the news story, the necessary measures were taken immediately.

In drafting the indictment, the Company Relations Bureau highlighted, among other arguments:

  • the failure to immediately disclose the contents of the letter compromises those who participated in transactions in the market during this period, by putting the company's shareholders into a position of information asymmetry, which therefore violates the principle of full and fair disclosure;
  • the claim of secrecy of all or part of the information cannot is not fitting in view of the indications of leakage, much less in cases where the information was not under the company's control;
  • the negotiation between the reference shareholder and the controlling shareholder resulted in conditions quite different from those initially disclosed to the market for the corporate merger;
  • it would not be possible to keep control over the information, whose origin was external to the company; and
  • the advice of the director of Investor Relations to outside consultants and/or other officers does not exempt or mitigate liability.

Initially, the defendant presented a proposal to assume a monetary obligation in the amount of R$ 250 thousand to extinguish the administrative sanctions proceeding, alleging, briefly, that:

  • He acted in accordance with its fiduciary duties as the company's director of Investor Relations;
  • the disclosure of an existing negotiation between the controlling shareholders and a reference shareholder could generate speculation in the market;
  • the topic had been discussed with experts in the field who advised him not to disclose material facts at that time; and
  • in the period between the sending of the letter and disclosure of the material fact, there was no swing in the company's share price.

In reviewing the proposal, the Consent Order Committee considered the following issues to conclude that the monetary obligation in the proposal should be improved:

  • the opportunity and convenience of entering into the settlement, as well as the nature and seriousness of the violations subject to the PAS, the prior history of the proponent, its good faith cooperation, and the effective possibility of punishment;
  • conduct performed after the entry into force of Law 13,506/17, which provides for a PAS in the sphere of the Central Bank of Brazil and the CVM, establishing new parameters for penalties and negotiation of monetary obligations;
  • the company's status among issuers of securities and its degree of shareholding dispersion;
  • the track record of the proponent, who had never been charged by the CVM in previous a PAS;
  • the possible classification in group II of annex 63 of the RCVM 45, assuming as maximum penalty R$ 600 thousand; and
  • CVM precedents in the review of similar cases.

After pondering the above elements, the recommendation was to improve the monetary obligation proposal to R$ 400 thousand, to be paid in a single installment. The proponent accepted the new terms of the proposal, which led the CVM board to follow the recommendation of the Consent Order Committee and decide, unanimously, to enter into the consent order.