Brazil’s First Insider Trading Conviction?
posted by Dave Hoffman
I find it hard to believe, but apparently so:
Two former executives of Sadia SA, the foodmaker that BRF Brasil Foods SA bought to form the world’s biggest poultry exporter, were sentenced and fined in the country’s first insider trading court ruling.
Former Chief Financial Officer Luiz Gonzaga Murat Jr. was sentenced to 21 months in prison and fined 349,712 reais ($210,100), Brazil’s securities regulator said today in an e- mailed statement. Romano Ancelmo Fontana Filho, a former board member, was sentenced to 17 months and fined 374,941 reais. Both can serve community service in lieu of prison.
Murat, who was Sadia’s CFO for 12 years until resigning in 2006, and Fontana were charged with illegally purchasing American depositary receipts of Perdigao SA before Sadia made a hostile bid to buy the rival in 2006. Murat and Fontana settled similar allegations of insider trading with the U.S. Securities and Exchange Commission in 2007.
The student who passed this along to me seemed relatively confident that the ruling would be overturned on appeal. If anyone out there knows something about Brazilian securities law, sufficient to explain how the market there functioned without a rigorous enforcement regime, please drop on by and comment. Otherwise, lots of L&E folks will be made very, very happy.
February 23, 2011 at 4:51 pm
Posted in: Corporate Finance, Corporate Law
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Responses (2)
Izabel Andrade - February 23, 2011 at 9:13 pm
The Brazilian market still lacks a rigorous enforcement regime. Most likely, this conviction was only possible because the Securities Exchange Commission brought up separate cases in the U.S. against three (not two) Brazilian citizens for similar insider trading offenses and they did not plead innocent. Once these cases were settled in the U.S., it became very easy for the Brazilian securities exchange commission (CVM) and the district attorney’s office in Sao Paulo to file charges against the offenders locally.
It should be noted that in Brazil all three individuals were punished by the CVM with civil penalties and barring from officer positions at publicly traded companies, and two of the offenders were also tried in the Court of Justice (the third one settled with the district attorney’s office to avoid trial). They were sentenced to prison and to the payment of civil penalties, beside being barred from acting as officers in publicly traded companies.
I suppose your student is confident that the ruling will be overturned because he has good reasons to distrust the Brazilian legal system. In my opinion the ruling should be overturned because these individuals have been tried three times for the same offense.
Finally, the insider trading law became effective in Brazil in 2001. If the Brazilian enforcement authority were efficient, Brazil’s greatest swindlers whose fraud, embezzlement, income-tax evasion and other financial crimes amount to millions or billions of dollars would have been convicted already. These major offenders will NEVER go to jail — not as long as they have money to “distribute”, and the country is ruled by political power and corruption.
Here’s a brief description of the cases brought up by the SEC:
http://www.sidley.com/files/News/8e1b6a01-a749-45fb-a38f-b7e689b9d143/Presentation/NewsAttachment/f931c9e9-38ba-4027-9214-b8acf6583ec6/SECSpeaksFeb08.pdf
SEC v. Luiz Gonzaga Murat Júnior;SEC v. Alexandre Ponzio
De Azevedo and SEC v.Romano Ancelmo Fontana Filho.109 The
SEC brought separate cases against Gonzaga Murat Júnior
(Murat), former Chief Financial Officer and Director of
Investor Relations at Sadia S.A. (Sadia), a Brazilian food
products company, Romano Ancelmo Fontana Filho
(Fontana), a former Sadia Director and Alexandre Ponzio De
Azevedo, a former employee of Banco ABN AMRO Real
S.A., an investment banking firm retained by Sadia. Murat,
Fontana and Azevedo are alleged to have engaged in insider
trading by purchasing securities of Perdigão S.A. (Perdigão)
prior to Sadia’s tender offer for Perdigão announced on July
16, 2006.110 All three defendants consented to the entry of
final judgments imposing injunctive and monetary relief.
Murat and Fontana also consented to the entry of final
judgments barring them from acting as officers or directors
of a publicly traded company for a period of five years.
Fontana paid $142,848.95 in disgorgement and prejudgment
interest and a civil penalty of $173,893.13, Murat paid
$184,028.12 in disgorgement and prejudgment interest and
a civil penalty of $180,404 and Azevedo paid $68,215.45 in
disgorgement.
Paddy Bear - February 24, 2011 at 1:38 pm
First insider trading conviction for BRAZIL? I’m sure there’s something wrong with that statement. As sure as I am that there’s going to be a lot more convictions down the line. I say this with as much confidence as my belief that too much Nutella will kill you: http://lawblog.legalmatch.com/2011/02/16/breaking-news-nutella-is-not-health-food/
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