Investment Funds and Structured Finance Newsletter No. 4

The Investment Funds and Structured Finance Newsletter provides information on the main administrative acts, rules, and legal texts regarding the regulation of the investment funds, asset management, and structured operations.

This newsletter is for informative purposes only, and should not be used for decision making. Specific legal advice can be provided by one of our lawyers.

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 CVM AND ANBIMA HIGHLIGHTS

1. CVM edita Ofícios Circulares para esclarecer dúvidas sobre a Resolução CVM 175
2. CVM orienta sobre mudança no sistema CVMWeb
3. CVM divulga estudo sobre possível regulamentação envolvendo influenciadores digitais e o mercado de capitais
4. Decreto que amplia setores para emissão de debêntures incentivadas é publicado
5. CVM e ANBIMA aprovam primeira habilitação de coordenador de oferta pública por meio de acordo de cooperação técnica
6. S&P Dow Jones Indices e B3 lançam os índices S&P/B3 Corporate Bond
7. BNDES realiza Chamada Pública para seleção e investimento de Fundos de Investimento em Participações – Capital Semente e Venture Capital

DECISIONS OF THE CVM COLLEGIATE BOARD

1. CVM julga PAS para apurar suposta irregularidade na oferta de valores mobiliários envolvendo fundos de investimento em criptomoedas
   
2. CVM julga proposta global de Termo de Compromisso envolvendo irregularidades na gestão e administração de Fundos de Investimentos
3. CVM julga Termo de Compromisso apresentado no âmbito de PAS envolvendo práticas fraudulentas com cadeias de fundos de investimento
4. CVM julga Processo Administrativo Sancionador para apurar suposta infração na aquisição de direitos creditórios
5. CVM julga proposta de Termo de Compromisso para apurar comportamento de profissional de auditoria não registrado na CVM
6. CVM julga Processo Administrativo Sancionador para apurar irregularidades detectadas na emissão e distribuição de debêntures

CVM AND ANBIMA HIGHLIGHTS

CVM amends Circular Letters to clarify questions about CVM Resolution 175

On December 03, 2022, the Brazilian Securities and Exchange Commission (“CVM”) issued the new regulatory framework for investment funds, CVM Resolution No. 175, dated December 23, 2022 (“CVM Resolution 175”).

As a result of the several changes, the participants started contacting the CVM and sending their opinions and doubts about the new rule.

In order to clarify the interpretations of the Superintendence for Oversight of Institutional Investors (“SIN”) and the Superintendence of Securitization Oversight (“SSE”) regarding the regulatory framework, the CVM issued two Circular Letters, the first on April 11, 2023, and the second on May 03, 2023 (respectively, “Letter No. 01/2023” and “Letter No. 2/2023”, jointly, the “Letters”).

Circular Letter 01/2023 aimed to clarify doubts about the general part of CVM Resolution 175, while Circular Letter 02/2023 focused on explaining Annex I of CVM Resolution 175, which provides for financial investment funds (FIF).

The Circular Letters under discussion were structured as questions and answers, based on inquiries sent by market participants over the past few months. Our team is preparing a Client Alert detailing our analyses of such Circular Letters, which will be made available soon.

For more information about the Circular Letters mentioned above, access:

The full content of Circular Letter No. 01/2023.

The full content of Circular Letter No. 2/2023.

CVM provides guidance on changes to the CVMWeb system

On April 12, 2023, Circular Letter CVM/SIN 1/2023 (“Circular Letter”) was issued, providing guidance on the changes made to the CVMWeb access and its related systems.

The CVMWeb system is used by the CVM participants for, among others:

• 1. submitting documents required by the CVM regulations in connection with investment funds, assets traded in trading markets, public offering service providers, publicly traded companies, as well as portfolio managers; and
  2. services related to fees and fines imposed by the CVM.

As of June 19, 2023, access to CVMWeb will permanently occur through the GOV.BR user login, and the specific user login will be discontinued. This change is in line with the CVM’s strategic purpose of consolidating the use of the federal government’s digital services.

A Technical Documentation file is also attached to the Circular Letter under discussion, which explains how the new system works.

For more information, access Circular Letter CVM/SIN 1/2023.

CVM releases study on possible regulation involving digital influencers and the capital markets

On April 19, 2023, the CVM released a study on digital influencers and the capital markets, seeking to assess the possibility of regulating the business relationship between influencers and participants of the securities market regulated by the CVM.

This topic is scheduled for public consultation in the CVM’s 2023 Regulatory Agenda.

The importance of this topic, which is scheduled for public consultation in the CVM’s 2023 Regulatory Agenda, consists in the fact that 75% of people consider that they learned to invest through information provided by digital influencers and youtubers. Based on this, social networks have notably become an important source of information about economy and investments.

The purpose of the regulation, according to José Antônio de Souza, analyst at the CVM’s Office of Economic and Risk Management Analysis (“ASA/CVM”), is not to regulate the performance of influencers, but to extend certain obligations to them (those already required by the CVM for other market participants).

Bruno Luna, head of ASA/CVM, says that the main recommendation is to establish a rule so that the influencer contracted by a CVM-regulated party discloses this contractual link when offering sponsored content about securities.

The benefits of this regulation would be the following: 

• 1. greater rigor for the capital markets;
  2. mitigation of potential conflicts of interest;
  3. greater legal security;
  4. prevention against financial risks; and
  5. improved credibility for the participants involved.

To support the discussion, the CVM studied initiatives adopted by other relevant jurisdictions (such as the United States and Europe) on this topic, in addition to the recommendations of the International Securities Organization. The recommendation by the ASA/CVM is in line with the US experience, which values information transparency, that is, influencers contracted by a SEC regulator must disclose their contractual relationship when offering sponsored content.

In Brazil, this topic will go through the traditional regulatory process, with the opening of a public hearing and, subsequently, the amendment to the regulation.

Although not yet regulated, the influencers’ practices have already been supervised since December 2022, when the CVM included supervision by topic in its 2023-2024 Two-year Risk-Based Supervision Plan.

Read the CVM Study in full.

Read the CVM’s 2023 Regulatory Agenda in full.

Read the 2023-2024 Two-year Risk-Based Supervision Plan.

For more information, access the CVM’s article in full.

Decree that extends the sectors for issuance of incentive debentures is published

On April 25, 2023, Decree No. 11,498 (“New Decree”) was signed by the President of Brazil, extending the scope of the sectors that may issue incentive debentures.

The New Decree amends Decree No. 8,874 of October 11, 2016, which regulates the conditions for approval of investment projects considered as priorities.

Through the New Decree, the following sectors will also be considered as priorities: basic sanitation, irrigation, education, health, public security and imprisonment system, urban parks and conservation units, cultural and sports facilities, as well as social housing and urban regeneration. Before the New Decree, only the logistics and transportation sectors, urban mobility, energy, telecommunications  as well as broadcasting were considered as priorities by the regulation.

Click here to access our Client Alert on the New Decree.

For more information, access the full version of the Decree.

CVM and ANBIMA approve the first qualification of a public offering coordinator through a technical cooperation agreement

In April 2023, the CVM and the ANBIMA granted the first public offering coordinator qualification to a non-financial institution, which became the first to be authorized to coordinate public offerings of securities.

Such authorization is in line with the rules of CVM Resolution 161, dated July 13, 2022 (“Resolution 161”), which came into force on January 02, 2023. According to Resolution 161, all non-financial institutions that intend to conduct the activities of public offering coordinators must apply for registration with the ANBIMA, which will conduct a preliminary analysis and forward the request to the CVM for further evaluation and final decision.

Warning: The qualification process is mandatory for all participants who intend to work as coordinators of securities public offerings, including those who already conducted such activities.

Financial institutions that have coordinated offerings in the 24 months prior to the publication of Resolution 161 can be involved in public offerings until June 30, 2023, without the need for qualification. As of this date, to continue their activities, these institutions must have filed a request for accreditation with ANBIMA.

For more information, access the CVM’s article in full.

S&P Dow Jones Indices and B3 launch the S&P/B3 Corporate Bond Indexes

On April 17, 2023, S&P Dow Jones Indices – the world’s leading index provider – and B3 S.A. – Brasil, Bolsa, Balcão (“B3”), jointly announced the launch of two new fixed income debt securities indexes for the Brazilian domestic corporate bond market (“New Indexes”).

The New Indexes, which include the “S&P/B3 Brazil IPCA Corporate Bond Index” and the “S&P/B3 Brazil Liquid IPCA Corporate Bond Index”, aim to measure the main exposure to incentive debentures in the Brazilian market, by using selection criteria based on crucial fixed income rules to select and weight their components.

For more information, access the B3’s article in full.

BNDES opens Public Call for selection and investment of Equity Investment Funds – Seed Capital and Venture Capital

On May 02, 2023, the National Bank for Economic and Social Development (“BNDES”), through BNDESPAR, launched a Public Call Notice (“Notice”) for the selection of up to six equity investment funds, of which up to 2 funds investing in companies with revenues of up to BRL16 million (“FIP Seed Capital”), and up to 4 funds investing in companies with revenues of up to BRL 300 million (“FIP Venture Capital”).

The BNDES’ committed equity in the 6 funds may reach the maximum limit of BRL 1.45 billion:

• 1. in the case of FIP Seed Capital, it will reach at least BRL 40 million, and at most BRL 125 million per fund; and
  2. in the case of FIP Venture Capital, it will reach at least BRL 50 million, and at most BRL 300 million per fund.

Proposals must be sent to the BNDES through its client portal, by means of in a searchable PDF version, by 6 pm on June 18, 2023.

All proposals received will be analyzed according to the criteria defined in the Notice.

The BNDES also launched a guide to assist potential participants in forwarding their proposals (“Guide”).

Any pertinent communication, including potential doubts related to the Guide or to the selection process in general, should be forwarded to the BNDES by the e-mail address chamadamultissetorial2023@bndes.gov.br.

 Read the BNDES article in full.

The Guide can be accessed through this link.

Click here to access the Public Notice.

DECISIONS OF THE CVM COLLEGIATE BOARD

CVM rules on PAS to investigate alleged inconsistency in the offering of securities involving cryptocurrency investment funds

The Sanctioning Administrative Proceeding No. 19957. 007433/2020-77 (“PAS”) was filed by the Superintendence of Securities Registration (“SRE”) against two companies (“Company No. 1” and “Company No. 2”, respectively, and jointly, the “Companies”), as well as two individuals, as partners and managers of Company No. 2 (“Partner No. 1” and “Partner No. 2”, respectively, and jointly, the “Partners”, whereas jointly with the Companies, the “Defendants”).

The purpose of this PAS is to investigate an alleged irregular securities offering, without obtaining prior registration with the CVM and/or its waiver, as previously provided by CVM Instruction 400, of December 29, 2003 (“CVM Instruction 400”), currently revoked by CVM Resolution 160, of July 13, 2022.

The PAS under discussion is a result of a complaint received by the CVM in 2018, which presented advertising material with an investment proposal offered by Company No. 1, which offered three cryptocurrency investment funds, along with promises of guaranteed income of 5%, 7% and 10%.

First, the complaint was analyzed by the Investor Orientation Management 2 (“GOI-2”), which concluded that the offering involved collective investment agreements. Later, Registration Management-3 (“GER-3”) sent an Official Letter requesting further information and documents about the irregular offering, in addition to issuing a warning about the consequences of maintaining such offering. Company No. 1 was also found to offer, on its website, “investment shares” in the Company and “compensation plans” for interested investors.

In response to the official letter sent by GER-3, Company No. 1 alleged that it had interrupted the announcement of all publications related to such offering on May 28, 2019 and that, at the time, one thousand shares of BRL1.000,00 each were offered, but none were purchased through its website – such argument was accepted by the CVM. 

However, on March 04, 2020, the Federal Prosecution Office of Espírito Santo (“MPF-ES”) submitted a note to the CVM reporting evidence of continued irregular offerings of securities by Company No. 1, through Company No. 2, (whose Partners are also listed as Defendants), via website and WhatsApp.

In view of the inconsistencies found, the SRE submitted a statement of charges against the Defendant, concluding that irregular securities offerings had occurred. The SRE understood that the offerings were considered public, since they were made via WhatsApp and website.

In the course of the complaint, the SRE concluded that the offered collective investment agreements had allegedly been acquired by, at least, 92 investors, accounting for BRL 10,765,765.50.

In view of the facts mentioned above, the technical area held the following accountable:

• 1. Company No. 1, as offeror, without obtaining prior registration with the CVM or its waiver; and
  2. the Partners, for the same reason in item (i) above, which constitutes a serious violation, under the terms of article 59, II, of CVM Instruction 400.

The Defendants, duly summoned, submitted their defenses and a settlement agreement proposal seeking the termination of the PAS, upon payment of BRL 50,000.00 in 10 monthly installments.

The Specialized Federal Attorney’s Office (“PFE”) stated that there was a legal impediment to the acceptance of the proposal. The Settlement Agreement Committee (“CTC”) stated that the proposal should be rejected.

Therefore, the Collegiate Board of CVM decided, by majority, on the following:

• • Company No. 1: a pecuniary fine in the amount of BRL 852,640.00 for infringing art. 19, main section and paragraph 5, I, of Law 6,385/76; as well as art. 2 and 4 of CVM Instruction 400, which required prior registration of the offering with the CVM or its waiver.
  • Company No. 2: a pecuniary fine in the amount of BRL 2,219,292.90 for the same violation.
  • Partner No. 1: a pecuniary fine in the amount of BRL 767,983.23.
  • Partner No. 2: a pecuniary fine in the amount of BRL 554,823.23, both for the same violations committed by the Partners.

For more information, access the report and vote of the Reporting President, João Pedro Nascimento.

CVM rules on global proposal of Settlement Agreement involving inconsistencies in the management and administration of Investment Funds

A global settlement agreement proposal (“Global Proposal”) was submitted by a financial institution, as custodian (“Custodian”) of the Fund and the FIDC (as defined below), to terminate Sanctioning Administrative Proceedings Nos. 19957.001508/2020-04 and 9957.010084/2021-51 (“PAS No. 1” and “PAS No. 2”, respectively).

The Global Proposal was submitted:

(a) Within the scope of an administrative investigation (“IA”), which resulted in PAS No. 1, conducted by the Superintendence of Sanctioning Proceeding (“SPS”), aiming to investigate potential inconsistencies in the management and administration of a certain fixed income investment fund portfolio (“Fund”).

(b) In the scope of PAS No. 2, filed by the SSE, aiming to investigate potential inconsistencies in a certain credit rights investment fund (“FIDC”).

The Global Proposal is a result of two charges from:

• 1. PAS No. 1, which resulted from the IA to investigate alleged evidence of fraudulent transactions in the securities market; and
  2. (ii) PAS No. 2, which alleged that the FIDC aimed to acquire credit rights assigned by suppliers of the same economic group, a supermarket chain of the “atacarejo” sector (that is, a hybrid model that integrates wholesale and retail) focused on classes C, D, and E.

The supermarket chain was the only drawee in the transaction, and as the FIDC went into operation, there was a sudden increase in the default of the credit rights portfolio.

As a result of the two charges, the Custodian submitted the Global Proposal mentioned for the execution of a Settlement Agreement, in an offer to pay BRL 300 thousand, of which BRL 150 thousand refer to PAS No. 1, and BRL 150 thousand refer to PAS No. 2, as compensation for the diffuse damages caused, in theory, in this case.

In the scope of PAS No. 1, the CVM’s Specialized Federal Attorney’s Office (“PFE/CVM”) filed an opinion stating that there was no impediment to the execution of an adjustment in such case, and recommended that there be a negotiation or clarification within the CTC, as a condition for the original proposal to be accepted.

In the scope of PAS No. 2, the PFE-CVM also stated that there was no legal impediment to the acceptance of the Global Proposal.

However, as a result of the charges, the CTC decided, on January 24, 2023, to reject the Global Proposal submitted by the Custodian, based on article 86 of CVM Resolution 45, dated August 31, 2021 (“CVM Resolution 45”), due to the nature and seriousness of the violations subject to the proceedings, as well as the precedents of the defendants, the good faith collaboration, and the effective possibility of punishment in such case.

The CTC also highlighted that of the 18 defendants in PAS No. 1, only the Custodian submitted a settlement agreement proposal, while under PAS No. 2, out of the 12 defendants, only 4 submitted a settlement agreement proposal, which reduces the degree of procedural economy. In addition, the CTC emphasized that the amounts offered in the Global Proposal are much lower than the amounts that would be minimally affordable for negotiating a consensual solution. Finally, the CTC remarked that there are 3 warning letters on the same subject. Considering the seriousness of the case, the frauds and elements present in the understanding of the technical areas, such frauds occurred allegedly because those who were responsible for carrying out inspection rounds failed to do what was expected, and such misconduct is under the special attention of the CVM in the scope of its supervisory activity.

The CVM Collegiate Board followed the CTC’s decision and rejected the Global Proposal submitted by the Custodian.

For more information, access the CTC website here.

CVM rules on settlement agreement proposal within the scope of PAS involving fraudulent practices and investment fund chains

A Settlement Agreement Proposal (“TC”) was presented by an individual, as partner of a management company (“Management Company”) of several investment funds (“Partner” and “Funds”, respectively).

The TC is a result from a Statement of Charges (“TA”), established after receiving a note from the Public Prosecution Office about potential irregular practices by the Manager, who allegedly received funds from the Social Security for the Public Sector (“RPPS”), in an amount that accounted for half of its assets, at that time.

The SIN undertook to hold the Partner liable for fraudulent transactions in which all the Funds managed by the Manager invested directly or indirectly in doubtful liquidity assets and received contributions from the RPPS.

The Funds that received contributions made tiered investments – a practice in which a fund acquires shares from other funds that, in turn, invest in other funds, whose resources are systematically invested in the same final assets, thus resulting in risk concentration of those RPPS in assets of few issuers. In this case, it was a three-tier investment:

• 1. The Funds received the resources directly from the RPPS.
  2. The Funds concentrated their investments in shares of two other intermediary funds.
  3. These intermediary funds directed their capital to other funds, forming a third tier, whose resources were concentrated in the acquisition of fund shares, whose portfolios contained securities of doubtful liquidity.

This application procedure made it difficult to identify and consolidate the investments made, increasing their risk exposure, the shareholder concentration limits, and the eligibility of certain funds in the investment chain by the RPPS.

Therefore, the Partner submitted a TC proposal, undertaking not to hold, for a period of three years, the position of manager or fiscal councilor of any publicly traded company, either of a distribution system entity, or of any other entities that depend on authorization or registration with the CVM.

The PFE/CVM submitted an opinion as to reject the TC due to the existence of a legal impediment to its execution, because of the “lack of an indemnity proposal, including the return of the illicit advantage obtained, even if as diffuse damages”.

The CTC, in a meeting held on January 31, 2023, decided, in conjunction with the CVM Collegiate Board, on the rejection of the proposal then submitted, taking into consideration:

• 1. the legal impediment indicated by the PFE-CVM;
  2. the seriousness of the case, with alleged evidence of fraud, causing damages to the RPPS;
  3. the reduced procedural economy (since only one defendant filed a TC); and
  4. the modus operandi adopted – Tiered Investment – with the purpose, in theory, of preventing the visibility of the investments that were made by the investors.

For more information, access the Opinion on the Settlement Agreement.

CVM rules on Sanctioning Administrative Proceeding on alleged violation of credit rights acquisition

PAS No. 19957.004381/2021-68 filed by the SSE is a result of two proceedings: (i) CVM Administrative Proceeding No. 19957.004268/2019-68; and (ii) CVM Administrative Proceeding No. 19957.009826/2019-81 (jointly, the “Administrative Proceedings”).

Both provide for the investigation of alleged inconsistencies in the financial reports of two non-standard FIDCs (“Fund No. 1”, “Fund No. 2” and, jointly, “Funds”), which had only one shareholder (“Single Shareholder”).

The Administrative Proceedings established the validity of credit rights in the Funds portfolios, which were assigned by the Single Shareholder, arising from lawsuits (“Credit Rights”).

The following information is highlighted about the cases under discussion:

• • In 1896, an area of 195.75 km² was expropriated in the state of Paraná (“Land”) through an action to establish and enforce the property right.
  • The action was granted in favor of the state of Paraná, and they were allowed to incorporate the Land in question.
  • Later, in 1949, the state of Paraná executed the decision to cancel the real estate records on behalf of the opposing party and their successors. However, the statute of limitations was granted, and the State of Paraná could not get the records canceled.
  • Numerous appeals were filed, but the decision was maintained by the STJ.
  • Immediately thereafter, a new claim was filed by the State trying to give the Land back.
  • On April 11, 2003, through a judicial decision, the following was stated: “in this case, there is no credit or any right, since the complaint was dismissed with a final and unappealable decision, and the case was shelved”.
  • On April 15, 2019, in view of a tax compensation attempt claimed by the original creditors or assignees, arising from potential credits related to the actions involving the Land, the Federal Revenue Office expressed, in short, that “there is no credit related to the Land, but even so, they were widely used in an attempt to compensate them with tax debts, both at the federal and state levels”.

In view of the history involving such credit rights, we highlight the facts related to the constitution of the Funds.

Fund No. 1:

• 1. Fund No. 1 was established on February 21, 2017.
  2. The Credit Rights of Fund No. 1 were incorporated by its Single Shareholder on February 08, 2019, through a private instrument executed at the end of 2018, which provided that the Credit Rights are a result from two actions, in which the state of Paraná had to return the Land under discussion.
  3. The Credit Rights in question were then priced in the Fund No.1’s portfolio at 20% of the face value. While the face value was calculated at BRL 350 million, the market value was calculated at BRL 70 million.
  4. After an analysis of the official letters sent due to the inconsistencies identified in Fund No. 1, the Structured Investment Management (“GIES”) informed that evidence of fraud was found regarding the Credit Right invested by the Fund.
  5. Fund No. 1 was settled in advance, assigning the sole credit right to the Single Shareholder.

Fund No. 2:

• 1. Fund No. 2 was established on September 19, 2019, and contains a different administrator and manager from those of Fund No. 1.
  2. The Fund No. 2 shares were subscribed by the Single Shareholder on September 25, 2019, through the contribution of Credit Rights priced at BRL 72 million, acquired through a transfer instrument executed on July 19, 2019.

Due to the inconsistencies highlighted above, the CVM filed a charge, pointing out that after the settlement of Fund No. 1, Fund No. 2 was established with the help of the administrators of Fund No. 1. Despite trying to dissociate the action for damages due to indirect expropriation of the other properties, they bear the same legal basis, that is, the Credit Rights for procedural misuse (the loss of possession of an asset using violence, illegality or precariousness).

Thus, the CVM Collegiate Board decided unanimously on the following:

• 1. A pecuniary fine of BRL 800,000.00 to the administrator of Fund No. 1, for the violation of article 92, I, of ICVM 555 and Art. 1, paragraph 1, of ICVM 444.
  2. A pecuniary fine of BRL 400,000.00 to the responsible officer of the of Fund No. 1 administrator, for the violation of article 92, I, of ICVM 555 and art. 1, paragraph 1, of ICVM 444.
  3. A pecuniary fine of BRL 680,000.00 to the manager of Fund No. 2, for the violation of article 92, I, of ICVM 555 and Art. 1, paragraph 1, of ICVM 444.
  4. A pecuniary fine of BRL 340,000.00 to the officer in charge of manager of Fund No. 2, for the violation of article 92, I, of ICVM 555 and art. 1, paragraph 1, of ICVM 444.
  5. A pecuniary fine of BRL 680,000.00 to the administrator of Fund No. 2, for the violation of article 92, I, of ICVM 555 and art. 1, paragraph 1, of ICVM 444.
  6. A pecuniary fine of BRL 340 thousand to the responsible officer of the administrator of Fund No. 2, for the violation of article 92, I, of ICVM 555 and article 1, paragraph 1, of ICVM 444.
  7. Acquittal of the Administrator of Fund No. 1 and Administrator of Fund No. 2, as well as its Officers, of the charges regarding the violation of article 92, I, of the ICVM 555 and article 15, paragraph 2, of ICVM 35.

For more information, access the report and vote of President João Pedro Nascimento, reporting officer of the case.

CVM rules on Settlement Agreement Proposal to decide on CVM-unregistered audit professional

A Settlement Agreement Proposal (“TC”) was presented by a legal entity, as an independent auditor (“Auditor”), and by an individual, as partner of the Auditor (“Partner”), prior to the establishment of a PAS by the Superintendence of Accounting and Auditing Rules (“SNC”).

The proceeding is a result of a self-reporting filed by the Auditor on September 20, 2022. The Auditor submitted information regarding a potential violation of the rules in force, as well as the measures adopted to correct said violation.

The main provisions, as submitted to the SNC, are as follows:

• 1. The Auditor was allegedly in charge of auditing the financial statements for the 2021 fiscal year, as well as for reviewing the intermediary information about the first two quarters of the 2022 fiscal year of a given company (“Company”), whereas said Auditor provided services to such Company since August 24, 2021.
  2. The Auditor identified, in his internal controls, that the audit report of the 2022 fiscal year, as well as the special review reports regarding the first two semesters of 2022 were allegedly subscribed by the Partner, who, at the time, was not registered as the responsible technical officer with the CVM.
  3. After identifying such inconsistency, the Auditor allegedly appointed another partner as a technical officer, with the support of a managing partner, both duly registered with the CVM, for reviewing the documents previously subscribed by the partner.
  4. The Auditor stated that he was allegedly awaiting the completion of the procedures adopted by the new persons appointed before issuing the new audit reports.
  5. The Company was allegedly notified about the event.

Concomitantly with the self-reporting, the Auditor submitted a TC proposal, informing that the irregularity found had a minor impact, since the only securities issued by the Company, which were admitted to trading in the markets supervised by the CVM, were simple debentures not convertible into shares. The procedures for correcting the identified failure were allegedly adopted on October 18, 2022, according to further information.

The TC proposal provided for the payment of BRL 300 thousand, in a single installment, as compensation for the damages caused.

From the set of information described above, the PEF/CVM submitted an opinion agreeing upon the execution of the TC submitted, as stated “the violations occurred in a specific time, that is, during the work and preparation of the audit report for the 2021 financial statements and the special review reports of the quarterly data forms of the 1st and 2nd quarters of 2022 (…) [of the Company], constituting unfair practices with fully consummated results. Thus, the inconsistencies are considered as cleared. “

On the other hand, the CTC, in the first meeting held on February 14, 2023, dismissed the execution of the proposed TC, in view of the history of the Auditor, as well as that the Partner did not submit a proposal to conduct the adjustment, and further expressed the need for notice from the CVM Collegiate Board.

The Auditor, then, proposed a request for reconsideration, undertaking to pay the amount of BRL 450 thousand, so the Partner offered a TC proposal to pay BRL 225 thousand to the CVM as compensation for the damages caused.

On April 13, 2023, the CTC held a meeting and again dismissed the TC proposal.

Dissatisfied, the Auditor submitted an early offer in relation to the TC proposal, informing that the proponents’ representatives were willing to pay the overall amount of BRL 907,600.00 to the CVM, of which the Company was liable to pay BRL 806,800.00, and the Partner would settle the remainder.

Therefore, the Collegiate Board, agreed upon the CTC opinion as to the dismissal of the joint TC proposal submitted by the Company and the Partner, based on article 86 of CVM Resolution 45, which provides for other criteria to be assessed when proposing a TC, in addition to the opportunity and convenience, which are:

• 1. the nature and seriousness of the violations committed;
  2. collaboration in good faith;
  3. the background history of the proponents; and
  4. the effective punishment in the specific case.

Click here to access the Opinion on the Settlement Agreement.

CVM rules on Administrative Sanctioning Proceeding to investigate inconsistencies in the issuance and distribution of debentures

Sanctioning Administrative Proceeding No. 19957.009798/2019-01 (“PAS”) was initiated by SRE against a certain company (“Company”), other individuals and legal entities (which are not mentioned in the decision).

The other individuals and legal entities were included in the PAS due to issues related to the subject of investigation, but will not be mentioned, since the charges against these parties were dismissed on February 26, 2021, as they had previously signed a settlement agreement with the CVM.

This PAS investigates an alleged violation of items I and II, letter “c”, of CVM Instruction No. 8, of October 8, 1979, for being identified several irregularities in the issuance and distribution of debentures, issued through a public offering by the Company (“Offering”), which were subscribed by two investment funds.

The investigation was opened because, until December 19, 2018, the Company had a share capital of BRL 100 thousand, consisting of 100 thousand ordinary nominative shares, wholly owned by a company involved in the Offering, acting as a fiduciary agent (“Fiduciary Agent”), which he owned as Single Shareholder a “limited liability company” (“Single Shareholder”), whose final beneficiary is an individual (“Final Beneficiary”).

The resources obtained by the Company through the payment of the debentures would be destined to the acquisition of all the shares of a certain company (“Company No.1”), to develop a real estate venture worth BRL 7 million.

On March 21, 2019, the General Meeting of Debenture Holders a decision was made to replace the real estate development land related to the issuance. Thus, the resources obtained from the Offering would be destined to the acquisition of the shares of another company, owner of rights on real estate assets destined to the construction of four other real estate projects.

Subsequently, on April 29, 2019, the SRE sent an official letter requesting the lead coordinator of the Offering (“Coordinator”) to submit documents and information, to analyze its performance, in which occasion the SRE identified several irregularities committed by the Coordinator.

Therefore, on May 07, 2019, the SRE sent a new official letter to the Coordinator, requesting for cancellation of the Offering before the CVM and B3, in addition to the full refund of the financial securities given in return for the securities offered – the amount of BRL 22,009,534.04 had already been raised. On May 22, 2019, a new general meeting of debenture holders was held, at which was decided to suspend the Offering.

After that, the SRE sent another letter, requesting the Company to send documents related to the Offering, specifically the evaluation report of Company No. 1, to obtain more information about the Offering. In response, the Company informed that it did not have this document, but only the evaluation report of the property to be built (“Evaluation Report”).

However, the SRE identified failures in the methodology applied for calculation of the amount of the square meter of the land, indicating that the real amount of the square meter was substantially lower than that indicated in the Evaluation Report, and for this reason sent a new official letter requesting further clarifications.

The issuance of debentures was structured in the form of an unsecured transaction (operação quirografária), that is, without collateral on the date of its issue, considering that the assets to be given in collateral would be acquired from the resources obtained through the Offering under discussion. Thus, there was a promise that the debentures would, in the future, be converted into secured guarantee.

Given the answers received, the financial resources had as main beneficiary the Fiduciary Agent himself, who has the Final Beneficiary as its controller, the Single Shareholder of the Single Shareholder, who was also administered by the Fiduciary Agent, who, in turn, owned the entire shares of the Company. In this regard, the following irregularities that resulted in the charge were identified by SRE:

• 1. the overvaluation of the land, subject to the plan related to the Offering included in the Evaluation Report made by a company that had been contracted by the Company, through unwritten instrument;
  2. failure to submit any kind of assessment report of Company No. 1, as well as the potential conflicts of interest regarding this matter;
  3. failure to provide collaterals; and
  4. the allocation of resources raised by the Company, with the identification of several transactions among related parties.

On January 27, 2020, the PFE-CVM published an opinion recommending that the Federal Prosecution Office be notified due to the existence of crime evidence of public criminal lawsuit, such as fraudulent management when issuing bonds or securities without sufficient ballast or collateral.

Through his vote, the reporting officer Otto Lobo pointed out that the defendants, except for the Company, had supposedly entered into a settlement agreement with the CVM, and the legal proceeding against them had been filed. The he reporting officer pointed out the company’s extinction on February 18, 2020, according to consultation on the Federal Revenue website. Thus, considering that there are no elements in the records proving that the extinction of the Company was fraudulent or otherwise trying to avoid the sanctioning activity of the CVM, the reporting officer voted for the annulment of the Company’s liability, because of its voluntary settlement and, consequently, for the dismissal of the case.

For more information, access the report and vote of the reporting officer Otto Lobo.