SEC: SC rejected decision for fine to Commercial Value and ratified decision for fine to E&G Electricplus
7/10/2009 15:31
Recent decisions of the Supreme Court on the Securities and Exchange Commission:
1. Commercial Value SA v. SEC
2. E&G Electricplus Ltd v. SEC
1. On September 22, 2009 to appeal 1217/2008, the Supreme Court cancelled the decision of the Securities and Exchange Commission for the imposition of an administrative fine to the applicant. The case concerned the imposition of an administrative fine of €100,000 for violating Article 13 of N.116(I)/2005 and paragraphs 5(1), 6 and 7 of Directive 5/2005 (Code of Conduct of Consultants and Related Persons). The applicant, holding 25% of the share capital of Universal Bank Public Ltd, which made it a “related person”, proceeded with the selling of Universal shares during a closed period.
The Court decided that although article 13 of N.116(I)/2005, pursuant to which Directive 5/2005 was issued, defines five categories of persons which the Code of Conduct of the Consultants and the Related Persons concerns, the applicant does not fall under any of these categories, therefore, the imposition of a fine was beyond the authorization of article 13 and ultra vires.
Specifically, the five categories defined by article 13 are the following:
1. Administrative members of the issuer
2. Managerial members of the issuer
3. Supervisory and audit members of the issue
4. Other employees of the issuer
5. Persons who have closed bond with them (see aforementioned categories)
The applicant (via its increased participation in the share capital of the issuer) had closed bond with the issuer itself but no bond with the categories of persons defined in 1-4 above. The Court decided that this relation is not covered by article 13 of N.116(I)/2005 and, therefore, Directive 5/2005 cannot be applicable.
2. On September 25, 2009 to appeal 1198/2008 (E&G Electricplus Ltd v. SEC), the Supreme Court rejected the applicant’s request and ratified the decision of the Securities and Exchanged Commission for the imposition of a fine of €80,000 and a daily fine of €800 from 19/6/2008 for violating Article 33(5), 33(6) and 42 of the SEC Law (N.64(I)/2001. The applicant refused to submit the information that the SEC requested in relation to the funding of the purchase of 1,114,134 shares of Universal Bank Public Co.
At first, the Company tried to achieve the issue of a temporary decree for the suspension of the effectiveness of the daily fine, but the effort was not successful.
The reasons for the appeal were the following:
- The SEC suffered a bad composition (the representative of the CB Governor was not present at a meeting)
- The applicants did not have an opportunity for a fair trial, because there was no “ascertainment of guilt” on behalf of the Commission.
- The applicants were willing to explain verbally the funding issue, something that the SEC refused.
With reference to the allegation for a bad composition, the Court decided that article 22 of N.158(I)/1999 was not breached since the representative of the Central Bank Governor who did not attend a meeting was informed fully about the case. Since he was briefed “about everything that is necessary for the taking of a decision”, there is no need to repeat the procedure.
With reference to the allegation for a lack of fair trial, the Court decided that those breaches are self-proven when it is ascertained that the companies refuse or omit to submit the necessary data. The applicants refused to reply to SEC’s request, stressing that their financial statements do not concern any other third person. Also, there is no perception of “guilt” in article 39 but only a “possible violation”, which does not refer to guilt and subsequently to a disciplinary or penal prosecution.
With reference to the allegation for verbal explanations, the Court said that according to article 39 of the Law, an application for verbal representations might be acceptable when these are necessary for the explanation of previous representations. The verbal explanation requires the submission of written representations, something that was never done.
Moreover, the Court analyzed that the administrative fine cannot be categorized as “penalty” within the notion of Article 12 of the Constitution so as to talk about penal indictments. So long as it is not a penal offence, the Court is not the only institution that can deal with the case, so the SEC is legalized to deal with the case itself.
1. Commercial Value SA v. SEC
2. E&G Electricplus Ltd v. SEC
1. On September 22, 2009 to appeal 1217/2008, the Supreme Court cancelled the decision of the Securities and Exchange Commission for the imposition of an administrative fine to the applicant. The case concerned the imposition of an administrative fine of €100,000 for violating Article 13 of N.116(I)/2005 and paragraphs 5(1), 6 and 7 of Directive 5/2005 (Code of Conduct of Consultants and Related Persons). The applicant, holding 25% of the share capital of Universal Bank Public Ltd, which made it a “related person”, proceeded with the selling of Universal shares during a closed period.
The Court decided that although article 13 of N.116(I)/2005, pursuant to which Directive 5/2005 was issued, defines five categories of persons which the Code of Conduct of the Consultants and the Related Persons concerns, the applicant does not fall under any of these categories, therefore, the imposition of a fine was beyond the authorization of article 13 and ultra vires.
Specifically, the five categories defined by article 13 are the following:
1. Administrative members of the issuer
2. Managerial members of the issuer
3. Supervisory and audit members of the issue
4. Other employees of the issuer
5. Persons who have closed bond with them (see aforementioned categories)
The applicant (via its increased participation in the share capital of the issuer) had closed bond with the issuer itself but no bond with the categories of persons defined in 1-4 above. The Court decided that this relation is not covered by article 13 of N.116(I)/2005 and, therefore, Directive 5/2005 cannot be applicable.
2. On September 25, 2009 to appeal 1198/2008 (E&G Electricplus Ltd v. SEC), the Supreme Court rejected the applicant’s request and ratified the decision of the Securities and Exchanged Commission for the imposition of a fine of €80,000 and a daily fine of €800 from 19/6/2008 for violating Article 33(5), 33(6) and 42 of the SEC Law (N.64(I)/2001. The applicant refused to submit the information that the SEC requested in relation to the funding of the purchase of 1,114,134 shares of Universal Bank Public Co.
At first, the Company tried to achieve the issue of a temporary decree for the suspension of the effectiveness of the daily fine, but the effort was not successful.
The reasons for the appeal were the following:
- The SEC suffered a bad composition (the representative of the CB Governor was not present at a meeting)
- The applicants did not have an opportunity for a fair trial, because there was no “ascertainment of guilt” on behalf of the Commission.
- The applicants were willing to explain verbally the funding issue, something that the SEC refused.
With reference to the allegation for a bad composition, the Court decided that article 22 of N.158(I)/1999 was not breached since the representative of the Central Bank Governor who did not attend a meeting was informed fully about the case. Since he was briefed “about everything that is necessary for the taking of a decision”, there is no need to repeat the procedure.
With reference to the allegation for a lack of fair trial, the Court decided that those breaches are self-proven when it is ascertained that the companies refuse or omit to submit the necessary data. The applicants refused to reply to SEC’s request, stressing that their financial statements do not concern any other third person. Also, there is no perception of “guilt” in article 39 but only a “possible violation”, which does not refer to guilt and subsequently to a disciplinary or penal prosecution.
With reference to the allegation for verbal explanations, the Court said that according to article 39 of the Law, an application for verbal representations might be acceptable when these are necessary for the explanation of previous representations. The verbal explanation requires the submission of written representations, something that was never done.
Moreover, the Court analyzed that the administrative fine cannot be categorized as “penalty” within the notion of Article 12 of the Constitution so as to talk about penal indictments. So long as it is not a penal offence, the Court is not the only institution that can deal with the case, so the SEC is legalized to deal with the case itself.
