The position of Investor Relations Officer (IRs) is key in Brazilian publicly traded companies. As the liaison between the company and investors, IRs and their fiduciary obligations have been subject of intense scrutiny by the Brazilian Securities and Exchange Commission (CVM).
We analyzed certain recent CVM decisions and verified the following relevant aspects about cases involving IRs in the exercise of their duties:
1. Informational failures: the majority of cases in the CVM against IRs involve informational failures caused by incomplete, untimely or inappropriate disclosure of facts relevant to the market, in violation of article 157, §4, of Federal Law N. 6,404/76 (Brazilian Corporate Law) and article 3 and 6, sole paragraph, of CVM Instruction 358.
Application of sanctions by the CVM in situations of inaccuracy in the disclosure of a “material fact” takes into account, in general: (i) the impact on the price of securities issued by the company or referenced to them; (ii) the decision of investors to buy, sell or hold securities issued by or referenced by the company; and (iii) the decision of investors to exercise any rights inherent to the condition of holder of securities issued by the company or referenced to them.
The main challenge for IRs is to identify which information has this potential to influence the price of shares or the decisions of investors, in order to deserve wide and immediate disclosure.
In some of the cases, it was found that the CVM considers that relevant facts are not limited to those that are under the control of the company. They also include news from the media, which, while not being true, attracts IR’s duty to publicly deny it.
2. Insider Trading: in more serious cases where insider trading was found to be used, it is possible that IR will be held criminally liable for crimes against the capital markets (Federal Law 6,385 / 76).
3. Fines: the average of pecuniary obligations revolves around BR$ 300,000 for non-compliance with a relevant fact (although this is not a rule), which may be higher, including in the millions depending on the nature and severity of the infractions, good faith of the accused, his background and the effective possibility of punishment in the specific case.
Due to their fiduciary duty towards investors, IRs need to be attentive and diligent in evaluating and communicating information to investors and the capital market in general, under penalty of being the subject of complaints, investigations and processes before the CVM.