Insider Trading, or the use of privileged information in the trading of securities, is one of the most serious financial crimes in the global corporate environment. It involves the buying or selling of stocks based on non-public, material information obtained in a privileged manner, which can significantly influence the value of the traded securities.
In Brazil, Insider Trading is regulated by the Securities and Exchange Commission (CVM) in accordance with Law No. 6.385/76 and Law No. 6.404/76 (Corporate Law). These laws explicitly prohibit the use of confidential information to gain an advantage in the capital markets, and impose severe sanctions on violators. The CVM has broad powers to investigate and punish individuals and companies involved in Insider Trading practices, with sanctions that may include significant fines, suspension of trading rights, and criminal actions.
To effectively combat Insider Trading, Brazil intends to adopt a series of criminal actions. Firstly, continuous monitoring of transactions and the use of forensic analysis techniques to identify suspicious activities are essential. International cooperation is also crucial, given the global nature of financial markets. Penal sanctions must be rigorous, including the imposition of heavy fines, imprisonment for those convicted, and the confiscation of illicit gains obtained through these practices. Legislation should be continuously reviewed and updated to cover new forms of Insider Trading and close legal loopholes, with clear definitions of what constitutes privileged information and who is considered an insider.
A significant case involved Cia. Hering and Fabio Hering for alleged use of privileged information during a stock buyback in 2021, while the company was negotiating a merger with Arezzo and Grupo Soma. The CVM suspended the process following a request for review by Director Otto Lobo, with no current timeline for resumption.
More recently, in March 2024, the Unified Federation of Oil Workers and the National Association of Minority Shareholders of Petrobras reported atypical transactions with Petrobras shares to the CVM, suspecting the use of privileged information and market manipulation. The complaint came shortly before the disclosure of Petrobras’s 2023 net profit, which reached R$ 124.6 billion, the second highest in the company’s history.
These cases highlight the need for robust corporate governance and effective mechanisms to prevent Insider Trading. Companies should implement stringent internal control policies and promote continuous training programs for employees on the legal and ethical implications of using privileged information. Transparency and clear communication with investors are essential to mitigate the risks of market manipulation. Adopting good governance practices protects the company and its executives from possible sanctions and strengthens investor and public confidence in the financial market.