Yes, according to Brazilian Law No. 6,385/76, CVM has the authority to investigate, punish fraudulent conduct in the securities market. There are at least two grounds for this:
- When the effects of fraudulent conduct cause harm to people residing in the Brazilian territory (Art. 9, §6, I); and
- When the acts of foreign entities are considered to have been practiced in the Brazilian territory (Art. 9, §6, II).
After all, does CVM have the authority to investigate, punish foreign entities that are not physically located in Brazilian territory? How does CVM generally interpret these provisions of Brazilian Law?
A) Fraudulent Conduct in the Securities Market: CVM’s Interpretation
The CVM (Comissão de Valores Mobiliários, or Brazilian Securities and Exchange Commission) defines fraudulent conduct in the securities market as any act of bad faith practiced with abuse of trust or clandestinely, without being registered with the CVM when it should be. This means that a foreign entity that illegitimately carries out regulated activity in Brazil is engaging in fraudulent conduct if it does not have the proper authorization, license, registration, or exemption from registration from the competent Brazilian regulators. This is a typical case of foreign entities, many of them licensed in their country of origin, that are not members of the securities distribution system in Brazil, capturing or attempting to capture resident investors in Brazil as their clients, especially through the use of the internet.
B) Harm to Persons Resident in the Brazilian Territory
To meet this requirement, the CVM verifies whether there are complaints from investors residing in Brazil against the foreign entity, either through the CVM’s own communication channels made available to Brazilian investors or through general consumer complaint forums in Brazil, such as Reclame Aqui (https://www.reclameaqui.com.br).
C) Acts Practiced in the Brazilian Territory
To fulfill these requirements, the CVM generally checks the website and social media profiles of the foreign institutions to identify indications of activities and practices aimed at investors residing in Brazil, such as:
- (i) Communication channels used and intended for customers, verification of telephone numbers in Brazil or website with indications about Brazil;
- (ii) Physical address in Brazil;
- (iii) Means of receiving and withdrawing funds typically created and used in Brazil (indication of “boleto”, pix, or Brazilian financial institutions);
- (iv) Use of social media with content in Portuguese or containing news and analyses on economic and market aspects in Brazil, even if not in Portuguese language.
The CVM’s interpretation of Brazilian law and its own Opinions (such as 32, 33, and 40) is that public communication via social media and the internet for the disclosure of the offer of securities characterizes such offer, as a rule, as public.
Finally, the CVM interprets that offers of securities and the intermediation of operations with securities carried out via the internet, even if from other jurisdictions, provided that they can reach the investors residing in Brazil, must be previously registered with the CVM.
Therefore, based on the mentioned context, the CVM’s interpretation is that it has the authority to investigate and punish irregular conduct by foreign entities.
(On July 16th, 2024, the CVM issued a decision in the Administrative Sanctioning Process CVM No. 19957.005524/2022-30 in which this topic of CVM’s competence was discussed and decided as per addressed above).
