In brief
- The offence may be committed by the de facto or de jure director of a company issuing securities traded on the securities markets who falsifies the economic and financial information in issue prospectuses or in the information it must publish under securities market legislation.
- It requires the information to have been falsified with intent in order to attract investors or depositors, place financial assets or obtain financing; it is not enough that a business forecast is not met.
- The basic offence is punishable by imprisonment of one to four years; where the harm is particularly serious, by imprisonment of one to six years and a fine of six to twelve months (day-fine system).
- The legal person (company) may be criminally liable, with a fine of two to five years or three to five times the profit.
- Formal approval of a prospectus does not make information that is materially false or incomplete truthful.
False information on traded securities (falsedad en la información de valores negociados) is a specific offence. Companies issuing traded securities must provide the market with truthful economic and financial information about their resources, activities and business. Falsifying that information in order to attract investors, place financial assets or obtain financing may constitute this offence, with significant criminal and civil consequences.
What does the offence of false information on traded securities consist of?
The offence may be committed by the de facto or de jure director of a company issuing securities traded on the securities markets. The conduct consists of falsifying the economic and financial information contained in prospectuses for the issue of financial instruments or in the information that the company must publish and disseminate under securities market legislation.
The falsehood must concern data relating to the company’s present and future resources, activities or business. It may consist of:
- including inaccurate data;
- presenting a financial position better than the real one;
- concealing relevant information;
- building an image of solvency that does not correspond to the entity’s actual situation.
It is not enough that a business forecast is not met. The offence requires the information to have been falsified with intent and a specific purpose: to attract investors or depositors, place financial assets or obtain financing by any means. The mere submission or publication of information does not automatically make someone who took no part in falsifying it a principal.
This offence has a specific scope. It concerns companies issuing traded securities and economic and financial information subject to the obligations specific to the securities market. Where the facts fall within this special offence, it displaces the application of other, more general corporate offences.
What is the penalty for false information on traded securities?
- Basic offence: imprisonment of one to four years.
- If the investment, deposit, placement of the asset or financing is actually obtained and harm is caused to the investor, depositor, acquirer or creditor as a result of the falsified information: the penalty is imposed in its upper half.
- Particularly serious harm: imprisonment of one to six years and a fine of six to twelve months.
Criminal liability may coexist with administrative securities market infringements and with civil claims by investors. Action by the Spanish National Securities Market Commission (CNMV) or the formal approval of a prospectus does not make information that is materially false or incomplete truthful.
Can the legal person be held criminally liable?
Yes. Corporate criminal liability is provided for this offence. The company may be liable where the falsification is carried out in its name or on its behalf, for its direct or indirect benefit, by its representatives, directors or persons with organisational and supervisory powers.
There may also be liability where the falsification is carried out by a person subject to the authority of management and was made possible by a serious breach of the duties of supervision, monitoring and control.
The company may be exempt if, before the acts, it had implemented and effectively applied a compliance programme (organisation and management model) suitable for preventing offences of this kind, with:
- financial and reporting controls;
- approval protocols;
- risk reporting channels;
- effective and independent oversight.
In small companies, oversight may fall to the board of directors within the limits laid down by law.
The main penalty for the legal person is a fine. For this offence it may be a fine of two to five years or an amount equal to three to five times the profit obtained or that could have been obtained, if the latter is higher. In addition, other penalties provided for legal persons may be imposed where the seriousness of the case so warrants.
Civil liability of the issuing company
The person who is criminally liable must make good the damage caused. Civil liability includes restitution, reparation of the damage and compensation for the pecuniary and non-pecuniary loss directly resulting from the offence.
Investors who have suffered loss may claim the damage actually caused where they prove:
- that they relied on the falsified information;
- that the information influenced the investment or financing decision;
- and that there is a causal link between the falsehood and the loss suffered.
Compensation cannot include losses caused by factors unrelated to the falsification, such as a general market crisis that is not sufficiently causally linked to the information disseminated.
The criminal liability of the legal person entails its joint and several civil liability with the individuals convicted for the same acts. In addition, securities market legislation may provide for specific liability actions against the issuer for information that does not give a true and fair view. The time limit and requirements for those actions must be analysed according to the type of information and the specific transaction.
Business example
A listed company prepares a prospectus for a capital increase. Those responsible know that there are significant losses, liquidity problems and overdue obligations that are not properly reflected. Nevertheless, they present a financial position and business prospects that convey an image of solvency sufficient to attract new contributions.
If the information is deliberately falsified to attract investors and they suffer harm, criminal, civil and administrative liability may arise.
Controls the company should maintain
The company should establish a documented process for preparing, reviewing and approving regulated financial information. It should identify who prepares the data, who verifies it, which risk warnings are included and which body authorises its dissemination.
It is also important to keep supporting documentation and record the decisions taken, especially where there are forecasts, complex transactions or information that is sensitive for the valuation of the entity.
Frequently asked questions
Who can commit the offence of false information on traded securities?
The de facto or de jure director of a company issuing securities traded on the securities markets. The mere submission or publication of information does not automatically make someone who took no part in falsifying it a principal.
Is it an offence if a published business forecast is not met?
It is not enough that a business forecast is not met. The offence requires the information to have been falsified with intent in order to attract investors or depositors, place financial assets or obtain financing by any means.
What is the penalty for falsifying the economic and financial information of an issuing company?
The basic offence is punishable by imprisonment of one to four years. If the harm caused is particularly serious, the penalty is imprisonment of one to six years and a fine of six to twelve months.
Does CNMV approval of the prospectus make the information truthful?
No. Action by the Spanish National Securities Market Commission (CNMV) or the formal approval of a prospectus does not make information that is materially false or incomplete truthful.