Extract taken from 'The Securities Ligation Review – edition 5'
i Forms of action
In Portugal, there are two forms of public enforcement of securities actions: criminal proceedings and administrative offences proceedings.
Public securities actions are brought against the perpetrator by the Public Prosecutor's Office or by the CMVM. In some cases, the issuance or sale of securities may have consequences in the financial institution accounts or financial ratios, and – if there is a breach of the respective governing rules – the Bank of Portugal may also initiate enforcement proceedings. For example, if the financial institution sells bonds and guarantees payment or interest but does not register that liability in its accounts, it may be subject to administrative proceedings for having false or inaccurate accounts. Hence, although the CMVM is the regulator empowered to supervise the securities market, the Bank of Portugal may have an indirect intervention.
In Portugal, the Public Prosecutor's Office has exclusive powers to bring criminal charges regardless of the nature of the crimes although, in some cases, administrative regulators may conduct preliminary investigations of crimes (e.g., the CMVM may investigate the crime of market manipulation). Ultimately, however, the investigation must be handed over to the Public Prosecutor's Office for charges to be brought against the alleged perpetrator.
Regulators can collaborate on the investigation and information may be shared between the enforcement agencies, with the exception of information and documents subject to privilege and information that can only be used for specific purposes (e.g., information obtained from a judicially authorised seizure for the purposes of prosecuting a crime may not be used in administrative offence proceedings).
Proceedings for administrative offences may be brought by the CMVM and the Bank of Portugal for breaches of the Portuguese Securities Code and the Credit Institutions and Financial Companies Framework, respectively, within their enforcement powers, which allow the two organisations' regulators to impose severe penalties and ancillary sanctions.
The Public Prosecutor's Office and the administrative regulators may – and do – simultaneously investigate the same entities for similar or identical facts. Although there is no obligation for these government entities to coordinate their investigations, all regulators must report to the Public Prosecutor's Office if they suspect a crime has been perpetrated.
In recent cases, the Public Prosecutor's Office and the administrative regulators have investigated and sanctioned very similar – if not identical – facts. For instance, forged accounts have concurrently been considered a crime (forgery of documentation), an offence sanctioned by the Bank of Portugal (breach of the duty to report the true financial situation of a bank) and an offence sanctioned by the CMVM (introducing false information to the market). This situation has raised public concern on the basis of potentially breaching the ne bis in idem rule. However, the courts have not yet rendered decisions on this issue.
Criminal investigations must be initiated by the Public Prosecutor's Office when it acquires knowledge that a crime or offence has been committed, whether directly or on account of a report. It should be noted that the mere reporting of a crime is sufficient for the Public Prosecutor's Office to open a criminal investigation, unless the report is anonymous, in which case an investigation may only be initiated if there is evidence of the commission of a crime.
With regard to securities-related criminal prosecution, once the investigation phase has terminated, the Public Prosecutor's Office must decide whether to charge the alleged perpetrator or close the proceedings. If the alleged perpetrator is charged, it may then request that a judicial investigation phase be opened and conducted to ascertain whether or not it should be charged and subject to trial for the relevant crime.
If the judge renders a charging decision, the accused party must then present the corresponding statement of defence and will subsequently be subject to trial, upon the termination of which the judge will render a decision. That decision may generally be appealed to a superior court.
Administrative offence proceedings, which are brought by the relevant administrative regulator, are initiated with an investigation. If evidence of an offence is collected, the regulator issues an accusation. In recent cases, the administrative regulators have come under fire for not presenting their evidence, which is usually composed of tens of thousands of pages of documents, in a systematic, coherent and organised form, to an extent that it forgoes the defendant's right of defence. In fact, the court with exclusive jurisdiction on competition, regulation and supervisory matters recently decided to annul the Bank of Portugal's accusation and subsequent final decision in a high-profile case on the grounds that the defendant's right of defence had been violated owing to the way in which the Bank of Portugal presented its evidence. Although the Bank of Portugal has since appealed that decision, which is currently pending, we have begun to see small changes in the way in which these proceedings are conducted. For instance, in other proceedings, the Bank of Portugal has provided defendants with a list of the documents included in the proceedings.
After being served the accusation, the defendant must then file the corresponding defence and its request for evidence. The regulator will produce all evidence it deems relevant. Afterwards, the regulator will render its final decision. If not acquitted, the defendant may appeal to a court with exclusive jurisdiction on competition, regulation and supervisory matters.
In recent years, there had been outrage in Portuguese public opinion at cases in which bankers have been acquitted on the grounds of the statutes of limitation. The perception that bankers were always left unpunished is putting pressure on the administrative regulators and courts to render convictions.
However, the pressure of the public opinion has raised fears regarding the impartiality of the decisions and the full respect of defendants' rights. This has been especially the case in the recent high-profile cases relating to Banco Privado Português, Banco Comercial Português and Grupo Espírito Santo, regarding which the administrative regulators have also been accused of (mostly by investors) breaching their corresponding duties. Those cases have particularly raised concern among lawyers and scholars on the impartiality of the administrative regulators considering that, during the administrative phase of the proceedings, the administrative regulators have the exclusive power to investigate, accuse, produce the evidence they deem fit and render a final decision, which can lead to the enforcement of millions of euros in penalties.
Under Portuguese law, it is not possible to settle securities claims within criminal and administrative offence proceedings. Currently, only the Portuguese Competition Law allows a settlement with a guilty plea as an alternative to prosecution.
Nevertheless, the Bank of Portugal and the CMVM may agree to issue an opinion on the sanction likely to be applicable in the event of a guilty plea and the full cooperation of the perpetrators, thus allowing the latter to weigh their options.
In addition, the Securities Code has recently been amended, establishing a new regime for a reduction of the penalty based on a system of confession and collaboration of the defendant. The maximum and minimum limits of the applicable penalties and ancillary sanctions may be reduced by one-third if the defendant (1) confesses to the facts; (2) provides relevant information in order to reveal the truth of facts; or (3) effectively assists in the production of evidence that is decisive for establishing the facts or for identifying other perpetrators. The maximum and minimum limits of the applicable penalties and ancillary sanctions may be reduced to half if the defendant simultaneously confesses to the facts and collaborates with the authorities in the revealing the truth of the facts and identifying other perpetrators.
The Portuguese Criminal Procedure Code also establishes that the Public Prosecutor may – subject to the judge's authorisation – stay the proceedings for crimes punishable with a maximum five years' imprisonment for a certain period as long as the defendants comply with specific injunctions. If the injunctions are satisfied and the defendant does not commit a similar crime during the period of stay, the proceedings are definitively closed. This possibility has rarely, if ever, been used in securities enforcement actions.
iv Sentencing and liability
In securities-related criminal proceedings, the perpetrators are subject to imprisonment or to the payment of fines. Factors that help determine the applicable penalty include the severity of the infraction and its consequences, the intensity of the perpetrators' fault or negligence, the personal and economic conditions of the perpetrators, and recidivism.
In administrative offence proceedings, the CMVM may impose severe fines and ancillary sanctions. The catalogue of penalties for administrative offences subject to the Securities Code was amended last year, with a notable increase in the amounts of penalties. For instance, penalties applicable to less serious misconduct have doubled from a minimum of €2,000 to €5,000 and a maximum of €500,000 to €1 million. In any case, the amount of the applicable fine depends on the severity of the infraction, subject to a maximum of €5 million. However, this amount can be increased up to a maximum of 10 per cent of the perpetrator's turnover, with the exception of the offences resulting from market manipulation and the use or transmission of inside information, which are punishable by a fine up to 15 per cent of the turnover of the infringing entity. In any case, the penalty may be increased up to triple the economic gain of the perpetrator.
Ancillary sanctions may also be applied for crimes or administrative offences, the most relevant of which include publication of the decision at the expense of the perpetrator, loss of economic proceeds from the offence, temporary suspension or definitive prohibition against carrying out the activity underlying the offence, prohibition from entering into specific contracts or entering into contracts with specific entities; exclusion from public subsidies and aid, and closure of the commercial establishment. The catalogue of ancillary penalties has also been amended, in order to include the prohibition of trading on one's own account, and the cancellation of registrations or the revocation of authorisations for the exercise of management, directorship or supervisory functions in entities subject to the supervision of the CMVM.
The determination of the fine and ancillary sanctions depends on the material illegality of the act, the agent's negligence, the benefits obtained and the prevention requirements. The following circumstances, among others, are taken into consideration when determining the material illegality of the act and the negligence of legal and similar entities: (1) the danger or damage caused to investors or the market for securities or other financial instruments; (2) the sporadic or repeated nature of the offence; (3) any concealment of acts tending to impair discovery of the offence; and (4) the existence of acts by the agent, at the agent's own initiative, aiming at curing the damages or mitigating the dangers caused by the offence. The following circumstances are taken into consideration when determining the material illegality of the act and negligence of natural persons, beside those relevant to legal entities: (1) the level of responsibility, scope of functions and role in the legal entity; (2) the intention to obtain, for itself or another entity, an illegitimate benefit or damages caused; and (3) the special duty to not commit the offence. In the determination of the applicable sanction, the agent's economic situation and previous and subsequent conduct are also taken into consideration, such as his or her collaboration with the CMVM or the court.
Lastly, the Securities Code was also amended in order to specify that the administrative liability of a legal person is only excluded when its agent acts against precise and specific orders or instructions, which were transmitted to the agent in writing before the commission of the infraction.