After the number of processes judged by the board of the Brazilian Securities and Exchange Commission (CVM) peaked at 109 in 2018, the pace has slowed every year, falling to 50 in 2022, but the proportion of convictions has increased. These figures are taken from a report titled Beyond CVM’s Numbers: Enforcement in the Brazilian Capital Markets, produced by the Nucleus for Financial and Capital Market Studies (MFCap) at Fundação Getulio Vargas’ Sao Paulo Law School.

According to the report, coordinated by Professor Viviane Muller Prado of the FGV Sao Paulo Law School and Professor Marcos Galileu Dutra of the Sao Paulo School of Business Administration (FGV EAESP), this reduction may be explained by multiple factors that have recurred year after year, such as budget limitations, difficulties in hiring new employees and the existence of other regulatory instruments such as stop orders and letters of warning. CVM began 2023 with 30% fewer employees than in 2010, despite the growth of the Brazilian financial markets in this period. One particular difficulty in 2022 compared to 2021 was the fact that until May, CVM’s board was missing some directors, but this issue has since been remedied.

Another significant factor to be considered is that many of CVM’s cases in the period in question were in response to incidents after 2017, meaning that they were subject to Law 13,506 of 2017, which among other things made some major changes to the severity of penalties and expanded the types of cases that can be solved by other regulatory instruments, other than penalizing administrative processes and agreements.

“In any event, it is possible to notice some dynamic changes in the profile of completed cases,” the professors write. They point out that “in 2022, there were significant changes in the profile of issues brought to trial, including a considerable reduction in the share related to corporate matters (17.3% of accusations in 2022, compared to 45.2% in 2021)”. Conversely, the share of processes involving accusations of portfolio management irregularities increased from 2.4% in 2021 to 26.1% in 2022.

Penalties applied

Between 2018 and 2022, CVM analyzed 307 accusations and maintained its long-term tendency of prioritizing financial penalties, used in 90% of the 193 punishments applied, followed by a warning (accounting for 6% of penalties). Total fines amounted to R$48.4 million, including R$20.4 million corresponding to judgments involving market misconduct.

The percentage of convictions grew in 2022, representing 62.9% of total sentences, up from 50.30% in 2021. The proportion of acquittals fell from 49% to 34.2% between 2021 and 2022, while the proportion of cases of extinction of criminal liability rose from 0.7% to 2.9%.

Beyond CVM’s Numbers

This is the third annual edition of Beyond CVM’s Numbers, which was first published in 2019 in order to present the results of CVM’s punishments and highlights from its quarterly and annual reports.

The purpose of this initiative is to identify and analyze trends over time and their relationship with CVM’s legal mandate, which includes ensuring the efficient and regular functioning of the financial markets and protecting investors from irregular issues, illegal acts by administrators, the use of insider information and different forms of market abuse, pursuant to article 4 of Law 6,385 of 1976.

To read the full study, click here.