Pecuniary Sanctions Against Issuers in European Capital Market Law: Harming the Protected Investors?

Abstract

There is a wide consensus in European capital market law that a sound legal framework for the financial sector should rest on a strong supervisory and sanctioning regime. According to this rationale and following the paradigm of competition law, the new legal framework in European capital market law provides for high-magnitude pecuniary sanctions. The new sanctioning regime does not entail special provisions for issuers. However, sanctions imposed on legal entities are of a higher magnitude than sanctions imposed on natural persons. We claim that the imposition of high-magnitude pecuniary sanctions on issuers for violations of capital market law provisions as such does not have the deterrent effect that it is thought to have and, under specific circumstances, can work against the protection of investors. Moreover, the sanctioning provisions of competition law must be examined carefully before being considered as a paradigm for the structure of sanctions against issuers under capital market law. Furthermore, we claim that in cases where innocent investors are harmed, capital market law should resolve the dilemma between entity and manager liability by choosing the latter.

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Notes

  1. 1.

    Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse) [2003] OJ L96/16-25.

  2. 2.

    Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC [2004] OJ L390/38-57.

  3. 3.

    Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC [2003] OJ L345/64-89.

  4. 4.

    See on procedural autonomy Case C-13/01 Safalero v. Prefetto di Genova, ΕU:C:2003:447, para. 49: ‘In the absence of Community rules governing the matter, it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules’. See also Case 33/76 Rewe v. Landwirtschaftskammer für das Saarland, ΕU:C:1976:188, para. 5; Case 45/76 Comet v. Produktschap voor Siergewassen, ΕU:C:1976:191, para. 13; Case C-312/93 Peterbroeck v. Belgian State, ΕU:C:1995:437, para. 12.

  5. 5.

    See Executive Summary to the Report on Administrative Measures and Sanctions as well as the Criminal Sanctions Available in Member States under the Market Abuse Directive, ref. CESR/08-099, available at https://www.esma.europa.eu/document/cesr-executive-summary-report-administrative-measures-and-sanctions-well-criminal-sanctions (accessed 4 Dec 2018).

  6. 6.

    Commission Staff Working Paper Impact Assessment, SEC (2011) 1217 final, p 25.

  7. 7.

    Report of the High Level Group on Financial Supervision in the EU, Brussels, 25 February 2009, p 23, available at http://ec.europa.eu/economy_finance/publications/pages/publication14527_en.pdf (accessed 4 Dec 2018).

  8. 8.

    See e.g. Recital 16 of Directive 2013/50: ‘In order to improve compliance with the requirements of Directive 2004/109/EC and following the communication from the Commission of 9 December 2010 entitled “Reinforcing sanctioning regimes in the financial sector”, the sanctioning powers should be enhanced and should satisfy certain essential requirements in relation to addressees, criteria to be taken into account when applying an administrative sanction or measure, key sanctioning powers and levels of administrative pecuniary sanctions’. See also Recital 70 of MAR.

  9. 9.

    Commission Staff Working Paper Impact Assessment, SEC (2011) 1217 final, p 170.

  10. 10.

    Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC [2014] OJ L173/1-61.

  11. 11.

    Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013 amending Directive 2004/109/EC of the European Parliament and of the Council on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, Directive 2003/71/EC of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading and Commission Directive 2007/14/EC laying down detailed rules for the implementation of certain provisions of Directive 2004/109/EC [2013] OJ L294/13-27.

  12. 12.

    Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC [2017] OJ L168/12-82.

  13. 13.

    See generally Veil and Brüggemeier (2015), p 289.

  14. 14.

    See generally on naming and shaming Skeel (2000–2001), pp 1811 et seq.; Vervessos (2014), pp 149 et seq.

  15. 15.

    See on disgorgement below Sect. 9.

  16. 16.

    Veil (2016), p 308.

  17. 17.

    See above Sect. 1.

  18. 18.

    Regulation (EU) 2017/1129 shall apply from 21 July 2019, except for Art. 1(3) and Art. 3(2) of the same Regulation, which shall apply from 21 July 2018 and points (a), (b) and (c) of the first subparagraph of Art. 1(5) and the second subparagraph of Art. 1(5), which shall apply from 20 July 2017.

  19. 19.

    See also Recitals 71 of MAR, 74 of Prospectus Regulation and 16 of Transparency Directive.

  20. 20.

    See Recitals 4 of MAR and 4, 87 of Prospectus Regulation. See also below Sect. 6.

  21. 21.

    See criticism referring to MAR due to the vague wording Poelzig (2016), p 497; Teigelack and Dolff (2016), pp 389 et seq. See, however, Veil (2016), pp 313, 317.

  22. 22.

    Case C-231/14 P InnoLux Corp. v. Commission, EU:C:2015:451, para. 48: ‘According to the Court’s case-law, although Article 23(2) of Regulation No 1/2003 leaves the Commission a discretion, it nevertheless limits the exercise of that discretion by establishing objective criteria to which the Commission must adhere. Thus, first, the amount of the fine that may be imposed on an undertaking is subject to a quantifiable and absolute ceiling, so that the maximum amount of the fine that can be imposed on a given undertaking can be determined in advance. Secondly, the exercise of that discretion is also limited by rules of conduct which the Commission has imposed on itself, in particular in the Guidelines on the method of setting fines (judgments in Guardian Industries and Guardian Europe v. Commission, C-580/12 P, EU:C:2014:2363, paragraph 55, and LG Display and LG Display Taiwan v. Commission, C-227/14 P, EU:C:2015:258, paragraph 51)’.

  23. 23.

    See however, Case C-295/12 P Telefónica SA v. Commission, EU:C:2014:2062, para. 51: ‘According to the case-law of the European Court of Human Rights, the obligation to comply with Article 6 of the ECHR does not preclude, in an administrative procedure, a “penalty” being imposed in the first instance by an administrative authority. For this to be possible, however, decisions taken by administrative authorities which do not themselves satisfy the requirements laid down in Article 6(1) of the ECHR must be subject to subsequent review by a judicial body endowed with unlimited jurisdiction (judgments of the European Court of Human Rights, Segame SA v. France, no 4837/06, § 55, ECHR 2012, and A. Menarini Diagnostics v. Italy, § 59)’.

  24. 24.

    Joined Cases 100/80 to 103/80 Musique Diffusion française and Others v. Commission, ΕU:C:1983:158, para. 121; Case C-189/02 P Dansk Rørindustri and Others v. Commission, ΕU:C:2005:408, para. 243; Case C-397/03 P Archer Daniels Midland and Archer Daniels Midland Ingredients v. Commission, ΕU:C:2006:328, para. 100; Case C-580/12 P Guardian Industries and Guardian Europe v. Commission, EU:C:2014:2363, para. 54.

  25. 25.

    Case C-511/11 Versalis SpA v. Commission, EU:C:2013:386, para. 103; Joined Cases 100/80 to 103/80 Musique Diffusion française and Others v. Commission, ΕU:C:1983:158, para. 121; Case C-189/02 P Dansk Rørindustri and Others v. Commission, ΕU:C:2005:408, para. 243.

  26. 26.

    Veil (2016), p 314.

  27. 27.

    See Art. 30(2)(j) of MAR: ‘[W]here the legal person is a parent undertaking or a subsidiary undertaking which is required to prepare consolidated financial accounts pursuant to Directive 2013/34/EU, the relevant total annual turnover shall be the total annual turnover or the corresponding type of income in accordance with the relevant accounting directives—Council Directive 86/635/EEC for banks and Council Directive 91/674/EEC for insurance companies—according to the last available consolidated accounts approved by the management body of the ultimate parent undertaking’. Similar provisions contain Art. 28(b)(1)(c) of Transparency Directive and Art. 38(2)(d) of Prospectus Regulation.

  28. 28.

    Veil (2017b), p 175; Veil and Brüggemeier (2015), p 289; see on Transparency Directive Nartowska and Walla (2014), p 895; Seibt and Wollenschläger (2014b), p 551; von Buttlar (2014), p 453.

  29. 29.

    See e.g. Art. 30(3) of MAR: ‘Member States may provide that competent authorities have powers in addition to those referred to in paragraph 2 and may provide for higher levels of sanctions than those established in that paragraph’. See also Art. 28b(3) of Transparency Directive and Art. 38(3) of Prospectus Regulation.

  30. 30.

    See the sanctions provided in Table 1

  31. 31.

    See also Commission Communication on reinforcing sanctions regimes in the financial services sector, COM (2010) 716 final, 8 December 2010: ‘The Commission is considering introducing appropriate provisions specifying that administrative sanctions should be applicable to all the persons responsible for an infringement. This should include the individual responsible for a violation and/or, where that individual is part of a financial institution, the financial institution to the benefit of which he acted when carrying out the violation’.

  32. 32.

    See on Transparency Directive Nartowska and Walla (2014), p 896: ‘[…] überlässt die Richtlinie die Definition der Personen die für den Verstoß konkret verantwortlich sind, dem nationalem Recht’.

  33. 33.

    See also Arts. 8(5) and 12(4) of MAR.

  34. 34.

    See also Recital 16 of Transparency Directive: ‘In the case of breaches by legal entities, Member States should be able to provide for the application of sanctions to members of administrative, management or supervisory bodies of the legal entity concerned or other individuals who can be held liable for those breaches under the conditions laid down in national law’.

  35. 35.

    The pecuniary sanctions are presented in Table 1.

  36. 36.

    See e.g. Commission Staff Working Document, SWD (2014) 231/2, paras. 62 et seq. However, the sanctioning regime in Member States when applying the European competition provisions is still not harmonized.

  37. 37.

    Joined Cases 100/80 to 103/80 Musique Diffusion française and Others v. Commission, ΕU:C:1983:158, para. 105. See also Case C-76/06 P Britannia Alloys & Chemicals v. Commission, ΕU:C:2007:326, para. 22; Case C-429/07 Inspecteur van de Belastingdienst v. X BV, ΕU:C:2009:359, para. 35: ‘The Commission’s power to impose fines on undertakings which intentionally or negligently commit an infringement of Articles 81(1) EC or 82 EC is one of the means conferred on the Commission in order to enable it to carry out the task of supervision entrusted to it by Community law’.

  38. 38.

    Case C-429/07 Inspecteur van de Belastingdienst v. X BV, ΕU:C:2009:359, para. 37.

  39. 39.

    See e.g. Case C-429/07 Inspecteur van de Belastingdienst v. X BVI, ΕU:C:2009:359, para. 36.

  40. 40.

    Case C-681/11 Bundeswettbewerbsbehörde and Bundeskartellanwalt v. Schenker & Co. AG and Others, EU:C:2013:404, paras 36, 40, 41.

  41. 41.

    Council Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty [2003] OJ L1/1-25.

  42. 42.

    Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation 1/2003 [2006] OJ C 210/2-5.

  43. 43.

    Commission Notice on immunity from fines and reduction of fines in cartel cases [2006] OJ C 298/17-22.

  44. 44.

    See Report of the High Level Group on Financial Supervision in the EU, Brussels, 25 February 2009, p 23, nr. 84, available at http://ec.europa.eu/economy_finance/publications/pages/publication14527_en.pdf (accessed 4 Dec 2018): ‘The huge pecuniary differences between the level of fines that can be levied in the competition area and financial fraud penalties is striking’; Kämmerer (2010), p 2059: ‘Wäre die gleichzeitige Annäherung der Bußgeldrahmen zwischen Wettbewerbs- und Kapitalmarktrecht jedenfalls ein logischer und nahe liegender Schritt’; Klusmann (2016), p 252: ‘Aufgrund seiner Vorreiterrolle im Sanktionsrecht eignet sich das Kartellrecht besonders als Vorbild für die Einführung von Unternehmenssanktionen in anderen Bereichen des Wirtschaftsrechts’; Veil (2016), p 305: ‘Im Mittelpunkt stehen konzernumsatzbezogene Geldbußen, die ein ähnliches Ausmaß annehmen wie im Kartellrecht’; Veil (2017b), p 176.

  45. 45.

    Poelzig (2016), p 497: ‘Die bußgeldrechtlichen Sanktionen […] erinnern in ihrer Systematik sowie in ihrem Ausmaß an das bekanntlich weitreichende Kartellsanktionenrecht’.

  46. 46.

    Seibt and Wollenschläger (2014a), p 603: ‘Die Umsatzorientierung der Bußgeldhöhe ist dem EU-Kartellrecht entlehnt […]’.

  47. 47.

    See Art. 23(2) of Regulation 1/2003.

  48. 48.

    Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation 1/2003 [2006] OJ C 210/2-5.

  49. 49.

    Joined Cases 100/80 to 103/80 Musique Diffusion française and Others v. Commission, ΕU:C:1983:158, para. 119; Case T-13/89 ICI v. Commission, ΕU:T:1992:35, para. 376. See also Case C-279/87 Tipp-Ex v. Commission, ΕU:C:1990:57.

  50. 50.

    See T-28/99 Sigma Tecnologie di rivestimento Srl v. Commission, ΕU:T:2002:76, para. 86; Τ-31/99 ABB Asea Brown Boveri Ltd v. Commission, ΕU:T:2002:77, para. 130.

  51. 51.

    Case T-145/89 Baustahlgewebe v. Commission, ΕU:T:1995:66, para. 158.

  52. 52.

    See, however, the case law in Germany BGH, BGHSt 58, 158—Grauzementkartell.

  53. 53.

    Case C-189/02 P Dansk Rørindustr et al. v. Commissioni, ΕU:C:2005:408, para. 283.

  54. 54.

    Klusmann (2016), pp 252, 253; Dannecker and Biermann (2012), paras. 18, 74.

  55. 55.

    Commission Staff Working Document, SWD (2014) 231/2, para. 93.

  56. 56.

    See, however, Joined Cases T-204/08 and T-212/08 Team Relocations NV et al. v. Commission, ΕU:T:2011:286, para. 156.

  57. 57.

    Commission Staff Working Document, SWD (2014) 231/2, para. 89.

  58. 58.

    Ibid., para. 62.

  59. 59.

    IOSCO, ‘Credible Deterrence in the Enforcement of Securities Regulation’, June 2015, para. 9, available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD490.pdf (accessed 4 Dec 2018).

  60. 60.

    See generally Huet (2012), p 251.

  61. 61.

    See generally Kornhauser (1982), pp 1345 et seq.; Kraakman (1984), pp 857 et seq.; Langevoort (2007), pp 627, 628; Langevoort (1996), pp 639, 653; Stone (1980), pp 1 et seq.; Sykes (1981), pp 168 et seq.

  62. 62.

    Rönnau and Wegner (2014), pp 158, 159.

  63. 63.

    See e.g. on SEC activities Steinway (2014), pp 209, 224. See also Langevoort (1996), pp 639, 653.

  64. 64.

    See generally Armour et al. (2016), p 592.

  65. 65.

    See generally on this issue Shavell (2004), pp 177 et seq.; Shavell (1980), pp 1 et seq.; Epstein (1973), pp 151 et seq.; Posner (1973), pp 205 et seq.; Rosenberg (2007), pp 1210 et seq.

  66. 66.

    See on redress issues below Sect. 8.1.

  67. 67.

    Kornhauser (1982), pp 1345 et seq.; Kraakman (1984), pp 857 et seq.; Sykes (1984), pp 1231 et seq.

  68. 68.

    Coffee (2006), pp 1534, 1536; Steinway (2014), p 222.

  69. 69.

    SEC v. Bank of Am. Corp., Nos. 09 Civ. 6829 (JSR), 10 Civ. 0215 (JSR), 2010 WL 624581, at *5 (S.D.N.Y. Feb. 22, 2010) (Rakoff, J.). See also Commission Communication on reinforcing sanctioning regimes in the financial services sector, COM (2010) 716 final, 8 December 2010: ‘Sanctioning the individuals responsible for a violation may be more appropriate where a violation is exclusively their responsibility’.

  70. 70.

    According to the SEC’s arguments in the abovementioned case ‘corporate penalty […] sends a strong signal to shareholders that unsatisfactory corporate conduct has occurred and allows shareholders to better assess the quality and performance of management’.

  71. 71.

    See Commission Communication on reinforcing sanctioning regimes in the financial services sector, COM (2010) 716 final, 8 December 2010: ‘[…] when an infringement is the responsibility of a legal person (e.g. a financial institution as a whole), sanctioning the natural persons (e.g. the employees involved in the infringement) only might be insufficient to encourage such financial institution to take the organisational measures and provide the staff training necessary to prevent infringements’. See also Langevoort (1996), pp 639, 654; Mitchell (2009), pp 243 et seq.

  72. 72.

    Cox (1997), p 511.

  73. 73.

    Easterbrook and Fischel (1996), p 340.

  74. 74.

    Statement of the Securities and Exchange Commission Concerning Financial Penalties, 4 January 2006, available at https://www.sec.gov/news/press/2006-4.htm (accessed 4 Dec 2018).

  75. 75.

    See Commission Communication on reinforcing sanctioning regimes in the financial services sector, COM (2010) 716 final, 8 December 2010.

  76. 76.

    H.R. Rep. 101-616 (1990), note 25 at 17. See also Grünewald (2016), pp 1121, 1122; Thomas (2015), pp 1409, 1411.

  77. 77.

    See also Commission Communication on reinforcing sanctioning regimes in the financial services sector, COM (2010) 716 final, 8 December 2010: ‘[…] a natural person (e.g. the manager of a bank) who is essentially responsible for an infringement might not be discouraged from committing infringements if he runs no risk of being sanctioned for his illicit conduct because sanctions are applied to legal persons (e.g. the bank) only’.

  78. 78.

    Arlen and Carney (1992), p 694; Langevoort (2007), p 635.

  79. 79.

    Langevoort (1996), p 654.

  80. 80.

    Steinway (2014), p 222.

  81. 81.

    See also Commission Communication on reinforcing sanctions regimes in the financial services sector, COM (2010) 716 final, 8 December 2010: ‘The Commission considers that subject to the specificities of each legislative act administrative sanctions should be available against the individuals responsible and the financial institutions to the benefit of which the individual acted’.

  82. 82.

    See below Sects. 8.1 and 9.

  83. 83.

    Cox (1997), p 511: ‘The question of entity liability is not, therefore, limited to securities violations and there seems little reason to so isolate the debate of the propriety of entity liability to securities violations. Managerial misbehavior, after all, is a portion of the risk that accompanies ownership. It is a risk internalized through the concept of entity liability’.

  84. 84.

    Coffee (2006), pp 1534, 1538. See also DAI, ‘Stellungnahme zum Entwurf eines Gesetzes zur weiteren Fortentwicklung des Finanzplatzes Deutschland’, February 2002, p 14: ‘Der Anleger, der durch die falsche oder unterlassene Information einen Schaden erlitten hätte, würde erneut bestraft, wenn statt der im Einzelfall handelnden Verantwortlichen das Unternehmen, an dem er beteiligt ist, Schadenersatzansprüche zu bedienen hätte’.

  85. 85.

    Mitchell (2009), pp 243, 244, fn. 3. See also Veil (2016), p 314.

  86. 86.

    See generally on market manipulation in shares buyback Tountopoulos (2012), pp 449 et seq.

  87. 87.

    McNew (2009), pp 48 et seq.

  88. 88.

    Cox (1997), p 509.

  89. 89.

    McNew (2009), pp 48 et seq.: ‘The crux of the problem is that these penalties against entities will ultimately be paid by the shareholders, many of whom may have actually been victims of the misdeeds themselves, and others of whom may not even have been shareholders at the times the violations occurred’.

  90. 90.

    This issue has common elements with the circularity phenomenon in secondary markets, which is discussed in Sect. 9.

  91. 91.

    Steinway (2014), p 223.

  92. 92.

    Armour, Mayer and Polo (2017), pp 1429 et seq.

  93. 93.

    IOSCO, ‘Objectives and Principles of Securities Regulation’, June 2010, p 3, available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD323.pdf (accessed 4 Dec 2018).

  94. 94.

    See Art. 1 of MAR, Recital 10 of Prospectus Directive, Recital 4 of Prospectus Regulation as well as Recitals 1, 5 and 7 of Transparency Directive.

  95. 95.

    Kalss et al. (2015), pp 9, 24; Oulds (2011), p 1826; Tountopoulos (2015), p 6; Veil (2017a), p 24.

  96. 96.

    Hopt (1975), p 52; Veil (2017a), p 25.

  97. 97.

    See Case C-384/93 Alpine Investments BV v. Minister van Financiën, ΕU:C:1995:126, para. 42: ‘The smooth operation of financial markets is largely contingent on the confidence they inspire in investors’; Tountopoulos (2014b), pp 337, 339.

  98. 98.

    See e.g. Moloney (2010), pp 102 et seq.

  99. 99.

    Commission Staff Working Paper Impact Assessment, 20 October 2011, SEC (2011) 1217 final, pp 51 et seq.

  100. 100.

    Tountopoulos (2015), p 11; Veil (2017a), p 25.

  101. 101.

    See generally on the investor profile to be protected Moloney (2010), pp 45 et seq; Andenas and Chiu (2013), pp 136 et seq.

  102. 102.

    There is a debate (especially in competition law) on whether securities are close substitutes for one another. See on this issue LG Stuttgart, Decision dated 17 March 2014–28 O 183/13, ZIP 2014, 726: ‘Der für Zwecke des Kartellrechts sachlich relevante Markt wird anhand der jeweiligen Marktgegenseite bestimmt. Finanzinstrumente wie börsengehandelte Aktien sind weitgehend austauschbar, weshalb alle börsengehandelten Aktien dem sachlich relevanten Markt zuzurechnen sind. Eine Verengung des sachlich relevanten Markts findet auch dann nicht statt, wenn für einzelne Marktteilnehmer aufgrund vertraglicher Abreden die Austauschbarkeit der dem Markt zugehörigen Güter eingeschränkt oder aufgehoben ist’. See also Hovenkamp (2003), pp 607, 610; Kling (2010–2011), pp 910, 936. See, however, LG Braunschweig, Decision dated 19 June 2013—5 O 552/12.

  103. 103.

    See however Kämmerer (2010), pp 2043, 2054: ‘Denn das Kapitalmarktrecht dient nicht so sehr dem Anlegerschutz […] als vielmehr der Regelung des Marktgeschehens’.

  104. 104.

    Statement of the Securities and Exchange Commission Concerning Financial Penalties, 4 January 2006, available at https://www.sec.gov/news/press/2006-4.htm (accessed 4 Dec 2018).

  105. 105.

    Mitchell (2009), pp 243 et seq.; Cox (1997), pp 497 et seq.

  106. 106.

    See above Sects. 2 and 3.

  107. 107.

    See below Sect. 7.2.

  108. 108.

    See below Sect. 7.1.

  109. 109.

    See Art. 28c(1)(d) of Transparency Directive.

  110. 110.

    See Art. 38(2)(c) and 39(1)(e) of Prospectus Regulation.

  111. 111.

    See Statement of the Securities and Exchange Commission Concerning Financial Penalties, 4 January 2006, available at https://www.sec.gov/news/press/2006-4.htm (accessed 4 Dec 2018).

  112. 112.

    See Statement of the Securities and Exchange Commission Concerning Financial Penalties, 4 January 2006, available at https://www.sec.gov/news/press/2006-4.htm (accessed 4 Dec 2018).

  113. 113.

    Commission Communication on reinforcing sanctioning regimes in the financial services sector, COM (2010) 716 final, 8 December 2010.

  114. 114.

    S. Rep. No. 101-337, at 17 (1990): ‘[B]ecause the costs of such penalties may be passed on to shareholders, the Committee intends that a penalty be sought when the violation results in an improper benefit to shareholders. [When] shareholders are the principal victims of the violations, the Committee expects that the SEC, when appropriate, will seek penalties from the individual offenders acting for a corporate issuer’.

  115. 115.

    See below Sect. 10.

  116. 116.

    Langevoort (2007), pp 627, 632.

  117. 117.

    McNew (2009), pp 48 et seq.

  118. 118.

    McNew (2009), pp 48 et seq.

  119. 119.

    See generally Easterbrook and Fischel (1996), p 41; Hansmann and Kraakman (2004), p 8.

  120. 120.

    Mitchell (2009), pp 243, 291.

  121. 121.

    See generally Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies [2007] OJ L184/17-24; Mitchell (2009), p 250.

  122. 122.

    See above Sect. 4.

  123. 123.

    J Rakoff, USDJ, Memorandum Order, 14 September 2009 in SEC v. Bank of America Corp.

  124. 124.

    See above Sect. 6.

  125. 125.

    Coffee (2006), pp 1534, 1562. See also Huet (2012), pp 245, 257 citing Decision of the Commission des Sanctions, 6 April 2006, according to which: ‘[…] il résulte de ce qui précède qu’elle [la société] a été trompée par M […], se trouvant elle-même gravement victime de ses agissements et qu’il conviendra dans ce cas de la dispenser de sanction’.

  126. 126.

    J Rakoff, USDJ, Memorandum Order, 14 September 2009 in SEC v. Bank of America Corp.

  127. 127.

    See Statement of the Securities and Exchange Commission Concerning Financial Penalties, 4 January 2006, available at https://www.sec.gov/news/press/2006-4.htm (accessed 4 Dec 2018). See also Speech by SEC Commissioner Paul S. Atkins, Remarks Before the International Corporate Governance Network 11th Annual Conference: ‘It would be unfortunate if, after all our efforts to the contrary, the Commission were to allow a boiler-plate nod to the penalty statement, thereby reverting to its prior practice of inappropriately imposing penalties on stockholders’, available at https://www.sec.gov/news/speech/2006/spch070606psa.htm.

  128. 128.

    See generally Easterbrook and Fischel (1996), p 42: ‘These diversified investors have neither the expertise nor the incentive to monitor the actions of specialized agents’.

  129. 129.

    Langevoort (1996), pp 639, 647.

  130. 130.

    See below Sect. 8.1.

  131. 131.

    See below Sect. 8.2.

  132. 132.

    See below Sect. 8.3.

  133. 133.

    See e.g. Seibt and Wollenschläger (2014a), p 603; Seibt and Wollenschläger (2014b), p 552; Seibt (2015), p 1098

  134. 134.

    See Ho v. Scintronix [2014] 3 SLR 329; [2014] SGCA 22; Moulin Global Eyecare v. Commissioner of Inland Revenue (Moulin Global Eyecare) [2014] HKCFA 22; BGH (1997) NJW 518 referring to the liability of a tax advisor. See also Bayreuther (2015), pp 1239 et seq.; Wan (2016), pp 225 et seq.

  135. 135.

    See for this terminology Bayer (2009), pp 85, 97; Fleischer (2014a), pp 1305, 1315.

  136. 136.

    See generally Fleischer (2014b), pp 345, 349; Reichert (2013), pp 756, 772; Fritz (2017), pp 677 et seq.; Seibt and Wollenschläger (2014a), pp 593, 603; Seibt (2015), p 1101; Spindler (2013), pp 889, 894; Wilhelmi (2017), pp 681 et seq.

  137. 137.

    See above Sect. 2.

  138. 138.

    Seibt and Wollenschläger (2014a), p 603.

  139. 139.

    LAG Düsseldorf (2015) NZKart 277. See, however, BAG, 29 June 2017, Az: 8 AZR 189/15, which overruled the decision of LAG Düsseldorf based on competence issues.

  140. 140.

    Safeway Stores Ltd & Ors v. Twigger & Ors [2010] EWCA Civ 1472. See generally Hannigan (2016), p 90; Watts (2011), pp 213 et seq.; Lim (2013a), pp 333 et seq.; Lim (2013b), pp 49 et seq. See further Jetivia SA v. Bilta (UK) Ltd (in Liquidation) [2015] UKSC 23 and Robertson (2015), pp 325 et seq.

  141. 141.

    Safeway Stores Ltd & Ors v. Twigger & Ors [2010] EWCA Civ 1472, para. 23.

  142. 142.

    Safeway Stores Ltd & Ors v. Twigger & Ors [2010] EWCA Civ 1472, para. 46.

  143. 143.

    Seibt and Wollenschläger (2014a), pp 593, 603; Poelzig (2016), pp 492, 502.

  144. 144.

    Grünewald (2016), pp 1121, 1122; Seibt (2015), p 1101. See also J.P. Morgan Securities v. Vigilant Insurance, 51 N.Y.S.3d 369, 373 (Sup. Ct. New York County 2017): ‘[T]he return of improperly acquired funds does not constitute a “loss” or “damages” within the meaning of insurance policies’.

  145. 145.

    See above Sect. 2.

  146. 146.

    As stated in Safeway Stores Ltd v. Twigger [2010] EWHC 11, para. 15: ‘[…] the real target of the present claim is not the assets of the individual defendants, many of whom are of modest means, but the directors’ and officers’ liability insurance available to the defendants […]’.

  147. 147.

    See on insurability of disgorgement J.P. Morgan Securities v. Vigilant Insurance, 91 A.D.3d 226 (1st Dept. 2011) holding that: ‘[…] disgorgement of ill-gotten gains or restitutionary damages does not constitute an insurable loss’ because ‘the risk of being directed to return improperly acquired funds is not insurable […] the public policy rationale for this rule is that the deterrent effect […] would be greatly undermined if wrongdoers were permitted to shift the cost […] to an insurer []’. See on the insurability of punitive damages in the US Walden (1985), pp 1383 et seq.; Priest (1988–1989), pp 1009 et seq.

  148. 148.

    See General Provision 6 (Insurance against financial penalties) of the FCA Handbook, which forbids any regulated firm from obtaining insurance coverage against financial fines. See also FDIC advisory bulletin dated 10 October 2013, entitled ‘Director and Officer Liability Insurance—Policies, Exclusions, and Indemnification for Civil Money Penalties’: ‘FDIC regulations prohibit an insured depository institution or depository institution holding company from purchasing insurance that would be used to pay or reimburse an [officer or director] for the cost of any [civil money penalty] assessed against such person in an administrative proceeding or civil action commenced by any federal banking agency’.

  149. 149.

    See generally Cass. 2e civ., 14 June 2012, n°11-17367 where the Court had to decide about ‘ni d’une faute d’inattention ou de négligence, ni d’une erreur de fait, mais de l’expression consciente d’une volonté délibérée de fournir au public des informations propres à modifier l’appréhension de la situation financière de la société, de valider des opérations qu’il savait illégales’. See, however, Safeway Stores Ltd v. Twigger [2010] EWCA Civ 1472.

  150. 150.

    See generally Arab Bank plc v. Zurich Insurance Co [1998] C.L.C. 1351.

  151. 151.

    Safeway Stores Ltd v. Twigger [2010] EWCA Civ 1472, para. 44: ‘The policy of the statute would be undermined if undertakings were able to pass on the liability to their employees or the employees’ D&O insurers […]’.

  152. 152.

    See generally Arons (2015), paras 13.84 et seq.; Athanassiou (2011), pp 213 et seq.; Dempegiotis (2008), pp 131 et seq.; Dijkstra (2012), pp 346 et seq.; Hadjiemmanuil (1997), pp 32 et seq.; Nolan (2013), pp 190 et seq.; Tison (2005), pp 639 et seq.

  153. 153.

    See Case C-222/02 Paul and others v. Bundesrepublik Deutschland, ΕU:C:2004:606, para. 47.

  154. 154.

    See generally Rossi (2003), pp 643, 662.

  155. 155.

    See e.g. Tison (2005), pp 639 et seq.; Dijkstra (2012), pp 346 et seq.

  156. 156.

    See e.g. BGH (2005) EuZW 186, 191: ‘Die Verletzung einer Schutzpflicht ließe sich daher nur feststellen, wenn der Gesetzgeber Schutzvorkehrungen entweder überhaupt nicht getroffen hat oder die getroffenen Regelungen und Maßnahmen gänzlich ungeeignet oder völlig unzulänglich sind, das gebotene Schutzziel zu erreichen, oder erheblich dahinter zurückbleiben (vgl. BVerfGE 92, 26, 46 = NJW 1995, 2339). Gemessen an diesen Maßstäben begegnen die Regelungen in § 6 IV KWG und § 4 IV FinDAG keinen verfassungsrechtlichen Bedenken’.

  157. 157.

    See Opinion of the European Central Bank of 27 November 2012 on a proposal for a Council regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions and a proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No. 1093/2010 establishing a European Supervisory Authority (European Banking Authority) (CON/2012/96) [2013] OJ C 30/6-11, para. 1.7. See also United States v. Gaubert, 499 US 315 (1991); Davis v. Radcliffe [1990] 2 All ER 536, [1990] 1 WLR 821; Yuen Kun Yeu and Others v. Attorney General for and of behalf of the Commissioner for Deposit–Taking Companies, HCA001324/1985.

  158. 158.

    ECtHR, Dennis Grainger and others v. UK, no. 34940/10, § 36, 10 July 2012.

  159. 159.

    See below Sect. 9.

  160. 160.

    See generally on this issue Armour et al. (2016), p 587; Hellgardt (2014), pp 157 et seq.; Klöhn (2011), pp 179 et seq.

  161. 161.

    See above Sect. 8.1.

  162. 162.

    See generally Tountopoulos (2014a), pp 297, 319.

  163. 163.

    Litton Industries, Inc., v. Lehman Brothers, 734 F. Supp. 1071, 1076: ‘[O]nce ill-gotten profits have been disgorged to the SEC, further disgorgement as damages in a private action is clearly punitive in its effect and would constitute an impermissible penalty assessment.’; see also SEC v. Penn Central. Co., 425 F Supp. 593, 599: ‘To the extent that defendants have made restitution, the amounts paid would serve to offset part or all of a judgment for disgorgement. In the event that we deem disgorgement appropriate, defendants will have the opportunity to prove that they have already relinquished their ill-gotten gains’.

  164. 164.

    On the principle ne bis in idem, see generally Case C-137/85 Maizena v. BALM, ΕU:C:1987:493, para. 21; see also Dougan (2012), pp 74, 87.

  165. 165.

    See in analogy Case C-453/99 Courage Ltd v. Crehan, ΕU:C:2001:465, para. 30.

  166. 166.

    Veil (2017b), p 177.

  167. 167.

    See above Sects. 5 and 6.

  168. 168.

    See generally Cox (1997), pp 497 et seq.; Langevoort (1996), pp 639 et seq.; Mahoney (1992), pp 623 et seq.; Fisch (2009), pp 333 et seq.; Mitchell (2009), pp 243 et seq.

  169. 169.

    See, generally, Autorité des Marchés Financiers (AMF), Report Relative to the Compensation of Damages Suffered by Savers and Investors, 25 January 2011, p 30: ‘[…] le paradoxe qu’il y aurait à voir des épargnants ou des actionnaires gagner leur action collective en responsabilité contre la société et recevoir de la part de celle-ci une indemnisation qui serait susceptible d’en dégrader les comptes et, par voie de conséquence, la valeur boursière, ce qui diminuera d’autant leur patrimoine financier’. See also Couret (2012), pp 229, 238; Davies (2007), p 7; Davies (2018), pp 318, 332; Hellgardt (2008), pp 399 et seq; MacNeil (2015), pp 280, 294.

  170. 170.

    See on this issue also OGH, 15 March 2012, 6 Ob 28/12d (2012) GesRZ 252; OGH, 30 March 2011, 7 Ob 77/10i (2011) GesRZ 251.

  171. 171.

    Case C -174/12 Alfred Hirmann v. Immofinanz AG, EU:C:2013:856, para. 45.

  172. 172.

    See on personal harm of investors in such cases Spitz (2010), p 180.

  173. 173.

    See above Sects. 4 and 7.2. In this direction also Armour et al. (2016), p 592: ‘…we might expect firm-level enforcement to be a relatively ineffective way of deterring misconduct such as fraud which is both privately motivated and relatively difficult to detect’.

  174. 174.

    COM (2010) 716 final, 8 December 2010: ‘In this situation, a natural person (e.g. the manager of a bank) who is essentially responsible for an infringement might not be discouraged from committing infringements if he runs no risk of being sanctioned for his illicit conduct because sanctions are applied to legal persons (e.g. the bank) only. On the other hand, when an individual has committed a violation to the benefit of a financial institution, sanctions applicable to the individual only might not have a sufficient deterrent effect on the financial institution. In addition, when an infringement is the responsibility of a legal person (e.g. a financial institution as a whole), sanctioning the natural persons (e.g. the employees involved in the infringement) only might be insufficient to encourage such financial institution to take the organisational measures and provide the staff training necessary to prevent infringements’.

  175. 175.

    See above Sects. 8.1, 8.2 and 8.3.

  176. 176.

    See generally Sextro (1985–1986), pp 99 et seq.

  177. 177.

    First Nat’l Bank v. Fidelity & Deposit Co., 283 Md. 228, 242, 389 A.2d 359, 367 (1978). See also Priest (Priest 1988–1989), pp 1009, 1014.

  178. 178.

    See analytically Art. 31 of MAR, Art. 28c of Transparency Directive and Art. 39(1) of Prospectus Regulation.

  179. 179.

    See in this direction Art. 9 of MAR.

  180. 180.

    Case C-510/06 P Archer Daniels Midland v. Commission, ΕU:C:2009:166, para. 82; Case T-150/89 Martinelli v. Commission, EU:T:1995:70, para. 59: ‘Fines constitute an instrument of the Commission’s competition policy. That is why it must be allowed a margin of discretion when fixing their amount, in order that it may channel the conduct of undertakings towards observance of the competition rules’.

  181. 181.

    See also Recital 71 of MAR.

  182. 182.

    Case C-681/11 Bundeswettbewerbsbehörde and Bundeskartellanwalt v. Schenker & Co. AG and Others, EU:C:2013:404, para. 46.

  183. 183.

    See analytically above Sect. 5.

  184. 184.

    See for Germany Nartowska and Walla (2015), pp 977 et seq.; Becker and Canzler (2014), pp 1090 et seq.

  185. 185.

    See above Sect. 3.

  186. 186.

    See Statement of the Securities and Exchange Commission Concerning Financial Penalties, 4 January 2006, available at https://www.sec.gov/news/press/2006-4.htm (accessed 4 Dec 2018).

  187. 187.

    See on this dilemma above Sect. 4. In this direction also MacNeil (2015), p 294 referring to private enforcement.

  188. 188.

    See on naming and shaming above n. 14.

  189. 189.

    See Communication from the Commission to the Council and the European Parliament—Modernising Company Law and Enhancing Corporate Governance in the European Union—A Plan to Move Forward, COM (2003) 0284 final, 21 March 2003.

  190. 190.

    See Art. 70(6)(d) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II) [2014] OJ L173/349-496. See on disqualification of banks’ directors Arsalidou (2016), pp 39 et seq.

  191. 191.

    See e.g. Williams (2007), pp 213 et seq.

  192. 192.

    See Hannigan (2016), p 375.

  193. 193.

    Jones (2013), p 441. See generally on debarment Carlson (2009), pp 679 et seq; Barnard (2004), pp 391 et seq.

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Acknowledgements

I thank my colleagues Evanghelos Perakis and Martin Winner as well as the reviewers of EBOR for useful comments and suggestions. Any remaining errors are mine.

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Correspondence to Vassilios D. Tountopoulos.

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Tountopoulos, V.D. Pecuniary Sanctions Against Issuers in European Capital Market Law: Harming the Protected Investors?. Eur Bus Org Law Rev 20, 695–733 (2019). https://doi.org/10.1007/s40804-019-00132-4

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Keywords

  • European capital market law
  • Enforcement
  • Pecuniary sanctions
  • Deterrence
  • Issuers
  • Protected investors