Extract taken from 'The Securities Ligation Review – edition 5'
Public enforcementi Forms of action
The key provisions with respect to public enforcement of securities transactions relate to insider trading, market manipulation, reporting duties, the duty to make a public offer and the duty to provide a prospectus for collective investment schemes. In the event of any breach, administrative measures and criminal sanctions may be imposed.Insider trading
Article 142 FMIA provides that any person who knows or should know that information constituting insider information or who has a recommendation that he or she knows or should know is based on insider information behaves inadmissibly when he or she:
- exploits it to acquire or dispose of securities listed in Switzerland or to use financial instruments derived from such securities;
- discloses it to another; or
- exploits such information to make a recommendation to another person to acquire or dispose of securities listed in Switzerland or to use financial instruments derived from such securities.
A corresponding, but slightly more restrictive, criminal provision is set forth in Article 154 FMIA.Market manipulation
Article 143 FMIA provides that a person behaves inadmissibly when he or she publicly disseminates information that he or she knows or should know gives false or misleading signals regarding the supply, demand or price of securities listed in Switzerland, or carries out transactions or purchase or sale orders that he or she knows or should know give false or misleading signals regarding the supply, demand or price of securities admitted on a trading venue in Switzerland. The FMIA also sets forth a criminal provision on market manipulation with a narrower scope.Reporting duty
Anyone who directly or indirectly or acting in concert with third parties acquires or disposes of shares or purchase or sale rights relating to shares of a company with a registered office in Switzerland whose equity securities are listed in whole or in part in Switzerland, or of a company with a registered office abroad whose equity securities are mainly listed in whole or in part in Switzerland, and thereby reaches, falls below or exceeds the thresholds of 3, 5, 10, 15, 20, 25, 33⅓, 50 or 66⅔ per cent of the voting rights, whether exercisable or not, must notify this to the company and to the stock exchanges on which the equity securities are listed.Duty to make an offer
Anyone who directly, indirectly or acting in concert with third parties acquires equity securities which, added to the equity securities already owned, exceed the threshold of 33⅓ per cent of the voting rights of a target company, whether exercisable or not, must make an offer to acquire all listed equity securities of the company. Target companies may raise this threshold to 49 per cent of voting rights in their articles of incorporation.Non-licensed banking activity
Professional acceptance of public funds is reserved to banks licensed by FINMA, with a specific exclusion for bond issues. However, if the prospectus does not provide for all required information, the issuer runs the risk of FINMA finding non-licensed banking activity and sanctioning the issuer.ii Procedure
FINMA may initiate administrative procedures to sanction the above duties. The proceedings are governed by the Federal Act on Administrative Procedures of 20 December 1968. In contrast, the Federal Department of Finance may initiate criminal procedures and impose criminal sanctions in the event criminal provisions of the FMIA are violated, save that the Attorney General of Switzerland is responsible to prosecute certain offences, such as the criminal offence of insider trading and market manipulation. The Federal Act on Administrative Criminal Law of 22 March 1974 (ACL) applies to procedures conducted by the Federal Department of Finance while the SCP applies to procedures conducted by the Attorney General of Switzerland.
If the Federal Department of Finance is of the view that the requirements for a custodial sentence or a custodial measure are met, the offence is subject to federal jurisdiction. In such a case, the Federal Department of Finance will refer the files to the office of the Attorney General of Switzerland for proceedings before the Federal Criminal Court.iii SettlementsFINMA
Swiss law does not provide for any specific settlement procedures with FINMA. However, in practice, before opening a formal procedure pursuant to Article 30 FINMASA, FINMA initiates an informal preliminary investigation and when concluded makes an informal proposal to the person concerned on how the matter can be settled without the need (and risks) of a formal procedure. Typically, this applies in cases where no major regulations have been breached and often results in the resignation of the person in question from any managerial functions in the financial industry for a number of years.Criminal authorities and Federal Department of Finance
There is only limited room for settlements in criminal investigations. Articles 52–54 of the Criminal Act provide for possibilities to refrain from prosecution in exceptional circumstances. In cases where financial loss was caused, and the offender made reparation for the injury or made every reasonable effort to right the wrong he or she has caused, the criminal authorities may in particular refrain from prosecution if the requirements for a suspended sentence (i.e., custodial sentence of no more than two years) are fulfilled and if the interests of the general public and of the persons harmed in prosecution are negligible. These provisions apply, by reference, also to the ACL.iv Sentencing and liabilityAdministrative sanctions
FINMA is given supervisory tools under Article 29 et seq. FINMASA. Among others, FINMA may require information, restore compliance with the law, issue a declaratory ruling, prohibit a person from practising a profession, publish a ruling, confiscate any profit or revoke a licence, withdraw a recognition and cancel a registration.
If the duty to report shareholdings is violated, insider information is misused or the market manipulated, FINMA may issue a declaratory ruling, publish the supervisory ruling or confiscate any profit.
If shareholdings are not reported, FINMA may, until the duty has been complied with, suspend voting and associated rights and prohibit the person concerned from acquiring further shares or purchase or sale rights relating to shares of the company, be it directly, indirectly or acting in concert with third parties.Criminal penalties
A criminal misuse of insider information or market manipulation may result in a penalty of up to 810,000 Swiss francs or imprisonment of up to three years. If the profit exceeds 1 million Swiss francs, imprisonment may be up to five years.
Penalties up to 10 million Swiss francs may be imposed in cases where the duty to disclose shareholdings or the duty to make an offer are wilfully violated.
Wilfully providing false information or withholding information in a prospectus with respect to collective investment schemes may result in a fine of up to 810,000 Swiss francs or imprisonment up to three years.Cooperation between FINMA and prosecution authorities
FINMA and the competent prosecution authority are obliged to exchange the information needed in connection with their collaboration and to fulfil their tasks. They have to use the information received exclusively to fulfil their respective tasks and coordinate their investigations to the extent practicable and required.
Where FINMA obtains knowledge of common law felonies and misdemeanours or of offences against a financial market act, it has to notify the competent prosecution authorities (Article 38 FINMASA).