Is market insider accurate – The Commission for the Financial Market (CMF) informs that, in the exercise of its powers, its Council resolved to apply sanctions for the use of privileged information and violations of the duty of abstention.
Once the sanctioning procedure ordered by the Investigation Unit concluded, the Council sanctioned Felipe Navarrete, director of Invercap SA, with a fine of UF 10,000 for making stock purchases using privileged information and communicating said information to his sisters.
Additionally, the Council of the CMF sanctioned the sisters of Felipe Navarrete, Ruth, and Anamaría Navarrete, with fines of UF 2,000 respectively, for not inhibiting themselves from operating in possession of privileged information when acquiring shares.
What the Behaviors Described for security market?
The behaviors described are contrary to what is stated in article 165 of Law No. 18,045 on the Securities Market, which prohibits making use of privileged information, operating with the securities to which such information refers, or communicating such information to third parties.
Article 165 of the Law expressly states that any person who, by reason of their position, position, activity or relationship with a securities issuer or with the persons indicated in article 166 of said Law, possesses privileged information, must keep confidentiality and You may not use it for your own benefit or that of others, or acquire or dispose of, for yourself or for third parties, directly or through other people, the securities on which you have said information.
Adds the prohibition of using privileged information to obtain benefits or avoid losses, through any type of operation with the values to which it refers or with instruments whose profitability determined by those values.
Along with this, it prohibits communicating said information to third parties or recommending the acquisition or disposal of said securities, ensuring that this does not occur through subordinates or trusted third parties.
As stated in the Sanctioning Resolution, the Board determined that the director of Invercap SA, Felipe Navarrete, violated the prohibition to use privileged information, as well as violated his duty of secrecy by communicating said information to his sisters Ruth and Anamaría.
Felipe Navarrete violated the aforementioned prohibition of use in the acquisitions of CAP shares that he carried out on December 7, 2020, operations that he carried out while in possession of privileged information.
The privileged information referred to Invercap SA board of directors agreement, dated December 4, 2020, to start an operation to acquire 6.77% of CAP shares own by MC Inversiones Limitada and to hire Banco BCI to the preliminary advice of said operation.
This acquisition would give CAP greater value, as a result of the greater stability in its administration and consolidation in its control by Invercap SA This, considering that it would have the possibility of electing four of its seven directors, according to the evaluation of the latter’s board of directors. . This had the potential to influence the CAP share price.
Thus, in possession of privileged information and having verified that he had carried out an operation with respect to the values to which said information referred, it possible to establish that Felipe Navarrete’s purchases were made in contravention of the prohibition on the use of privileged information to referred to in article 165 of the Securities Marking Law.
What was the Resolution Details?
The Resolution details that on January 4, 2021, Felipe’s sisters, Ruth and Anamaría Navarrete Pérez, met for lunch at a restaurant in the El Golf neighborhood in Santiago. While they were meeting, Ruth and Anamaría Navarrete gave the order to buy CAP shares through BCI Corredores de Bolsa.
Finally, the Resolution concludes that Ruth and Anamaría Navarrete ordered the purchases while in possession of privileged information, since that day they received privileged information and, therefore, prevented from acquiring such securities, and should have refrained from the purchase.
Relevance of the sanctioned conduct
The Resolution considers that, in order to safeguard the proper functioning, development, and stability of the stock market, the legislator has prohibited operating in possession of privileged information or using it for their own benefit or that of others.
This is with the objective of safeguarding the transparency, trust, integrity, and fairness of the market, thus protecting investors and guaranteeing equal opportunities and access to information among agents operating in the market.
In this way, what sought when prohibiting the use of privileged information is to prevent a person from taking improper advantage of their relationship or position with the respective issuer of securities or certain persons -insiders-, illegitimately using said kind of information.
The Resolution specifies that the duty of secrecy that governs the directors of issuers of securities takes on special relevance considering that they are insiders par excellence of such entities.
Thus, what sought that they keep strict confidentiality with respect to the privileged information that they access in this capacity, in order to avoid its improper use and prevent harmful effects from generated in the stock market.
What were the legal rights of security Markets?
The legal right that the Securities Market Law seeks to protect is confidence in the market, considering that access to the stock market represents a potential source of financing for Chilean companies for their investment projects.
This financing delivered by those who just acquire securities in that market and that allow the growth of those companies.
The Commission also reports that it denounced Felipe Navarrete to the Public Prosecutor’s Office since the acts for which he penalized could have characteristics of any of the crimes contemplated in letters e), g) and h) of article 60 of the Law on the Market of Values.