In a recent decision by the Brazilian Securities and Exchange Commission (CVM), it ratifies the need to register or request exemption from public offering a Collective Investment Contract (CIC) in Brazil, resulting in the imposition of a fine for a company that failed to carry out the procedure as determined by law.
The CVM’s understanding is clear in the sense that at any opportunity a collective contract is used to raise funds from an investor – qualified or not, according to Brazilian criteria – and that this raising is carried out through public means, be it the internet, billboards, or even via brokers, this offer will be characterized as CIC and, consequently, will be subject to inspection, and mainly to CVM sanctions. There are two alternatives when an risk assessment of the matter is being made: registering the offer or filing a request for exemption from registration.
These analyzes must be carried out on a case-by-case basis, and according to each business model, so that only after this careful examination can the request for registration or exemption be forwarded to the CVM, in order to avoid the imposition of the sanctions provided for in article 11 of the Law n. 6,385/76, such as, for example, fines of up to BRL50 million and temporary disqualification from carrying out activities for a period of up to 20 years.
In the case described here, a specific society was created, with the investors as partners, who provided the necessary resources for the development of the real estate project. This called “partners” were attracted through different means, most of them through publicly released advertising materials. Given this business structure, the CVM understood that it was a public offering, which is why it condemned the company responsible for the project and its administrator to pay fines that, together, reach R$ 1 million.
The CVM, as a regulatory agency, is increasingly monitoring this type of investment, investigating cases in which contractual relationships are manipulated, and also the way in which these offers are conveyed, in an attempt to avoid being classified as a CIC in order to protect the investors.
