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The Limits of CVM’s Investigative and Punitive Authority

The judgment on Administrative Sanctioning Proceeding (PAS) RJ2013/2759 held last February 20, 2018 has set a landmark precedent concerning the extent of the investigative and punitive authority bestowed on the Brazilian Securities Commission (CVM).

Among other issues, PAS RJ2013/2759 probed into the liability imputable to the chair of a presiding board of annual general meeting for a purported violation of the rules set out in the Brazilian Corporation Act (Law 6,404 of 1976) by accepting the votes of a shareholder prevented from taking part in meeting resolutions.

The matter in point was the election of fiscal board (conselho fiscal) members reserved for preferred shareholders. One of those preferred shareholders, however, was controlled by the company’s controlling person, and doubts then arose as to whether such preferred shareholder could take part in such resolution.

The non-impairment was first acknowledged at the meeting, but – as such shareholder had also voted favorably to the resolution authorizing its own participation in election of fiscal board members, the CVM’s Corporate Relations Authority (SEP) upheld its charges against the chair of the meeting on purported violation of article 161, paragraph 4, and article 128 of the Brazilian Corporation Act.

Nevertheless, the merits of this dispute (i.e., whether the chair of the general meeting should have acknowledged the impairment of such preferred shareholder) were not the gravamen of the analysis conducted by the reporting member in PAS RJ2013/2759, Henrique Balduino Machado Moreira, whose vote eventually prevailed.

In this opinion, Henrique Moreira raised another aspect predating the matter at issue: does the CVM actually have authority to (i) probe into the acts of a chair of general meeting, via administrative proceeding, and (ii) impose sanctions, if any?

This view on such preliminary aspect relied on article 9, V of the Brazilian Capital Markets Act (Law 6,385 of 1976), which draws the lines about the CVM authority to instate administrative sanctioning proceedings. According to said legal provision, the CVM authority over purported violations of this ilk is limited to the acts carried out by senior managers (non-employee directors and officers), members of the fiscal board, shareholders of publicly-held companies, intermediaries, and other market players.

Based on this limiting provision, the prevailing vote delved into the question whether the chair of a general meeting qualified as any of those persons listed in article 9 of the Brazilian Capital Markets Act.

During the judgment, discussions revolved around the extent of the only open concept envisaged in the aforementioned article (“other market players”) and whether it reached the chair of a general meeting.

Since the roles inherent to a chair mostly refer to organization and conduction of works at the general meeting, and the chair’s participation is limited to the company’s internal affairs, the reporting member came to the conclusion that the chair’s role and actions entail no actual participation or say in the market. By extension, such “other market players” should thus refer to securities advisors and analysts committing an offense, as well as to insider traders and riggers.

By majority decision, the CVM Board thus dismissed PAS RJ2013/2759 without judgment on the merits regarding the chair of the annual general meeting, for lack of CVM’s standing.

This decision is fair and daring.

In fact, the roles and authority must be clear-cut. The towering purposes and status of CVM should not serve as grounds for extending its actions beyond legitimate authority just to cater to corporate and social expectations. It goes without saying that CVM is indeed tasked with keeping the balance and fairness in the securities market, but it must only avail itself of the mechanisms legitimately available to that end. The CVM roles and authority are governed and strictly limited by the law.

However correct, this decision made in the course of PAS RJ2013/2759 could apparently evolve into a more permissible environment where the chair of a general meeting would feel less inspected and, by extension, more at ease to take actions that would otherwise trigger an administrative sanctioning proceeding.

This is a legitimate concern. Nevertheless, as the reporting member pointed out, the CVM’s lack of standing to instate administrative sanctioning proceedings against the chair of a general meeting does not prevent the CVM from entertaining the lawfulness of his actions via administrative non-sanctioning proceedings, nor would it hinder discussions over civil liability for misconduct.

Further, the system itself has several remedies in place. A shareholder unlawfully voting does fall into the accusation, investigation and judgment authority of the CVM and, as such, remains subject to the CVM penalties.

The gist of this matter, however, lies in necessary observance of the legal limits prescribed for the CVM role and authority.  And, within this context, the reporting member’s vote is impeccable.

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Rodrigo Monteiro de Castro's picture

Rodrigo Monteiro de Castro is specialized in corporate and business laws, corporate transactions (M&A), capital markets and contracts.

He holds a Master’s degree and a PhD degree in Commercial Law from PUC-SP. MBA from INSPER. Founder and Former Chairman of the Institute of Applied Corporate Law (“Instituto de Direito Societário Aplicado – IDSA”) (2004-2010). Chairman of the “Movimento de Defesa da Advocacia – MDA” and a member of the Organizing Committee of the Brazilian Congress of Commercial Law (“Congresso Brasileiro de Direito Comercial”). Chairman of the Monitoring Committee for the New Brazilian Commercial Code of the São Paulo Bar Association OAB/SP). Professor of Commercial Law at the Mackenzie Presbiterian University. Author of several books and papers and co-author of Bill No 4,303/12 (Sociedade Anônima Simplificada) and Bill No 5,082/16 (Soccer Corporation).


Leonardo is specialized in Corporate Law at INSPER (expected 2018).

He holds a bachelor´s degree in Law from Federal University of Pernambuco (UFPE). Member of the Banking Law Committee at OAB-PE.