Reff and Associates: Final act of market abuse case involving representatives of Bank of Cyprus and Banca Transilvania
The final act of the market abuse court case involving representatives of Bank of Cyprus and Banca Transilvania. Which lawyers defended the representatives of Bank of Cyprus? What is the relevance of this case in the context of the Romanian Capital Market and what are the aspects to be considered by the regulators, investors, brokers and issuers in the overall European context of enhanced enforcement of market abuse rules?
As reported by the media, on 2 July 2014 the Supreme Court dismissed the second appeal of DIICOT in what to date is the most relevant case concerning matters of market manipulation and insider dealing ruled on the merits in a Romanian court. The file was brought to trial in 2010 in front of the Criminal Section of Bucharest Tribunal and concerned transactions related to Bank of Cyprus acquisition of around 9 per cent of Banca Transilvania shares.
In effect of the Supreme Court decision, the former General Manager of Bank of Cyprus-Romania Branch-Georgios Christoforou and the former sanctioning manager Anastasios Isaakidis, along with several other individuals, including Horia Ciorcila, the President of the Board of Directors of Banca Transilvania have been irrevocably acquitted. The legal assistance for the Bank of Cyprus officers throughout the four years of this case had been secured by Reff&Associates SCA Banking&Securities team (including Andrei Burz-Pinzaru, Leontin Trifa, Radu Straut and Andreea Serban) jointly with Florin Dutu of Voicu&Filipescu SCA.
Georgios Christoforou, one of the former employees of Bank of Cyprus involved in this case stated: "As one can understand, for myself and for my former colleague Tassos Isaakides, this result comes with satisfaction after almost five years of legal proceedings. It also makes justice, because it confirms that we have executed the mandate by our former employer for its own benefit and in full legality. Noteworthy, the acquittal decisions in this case comprise of more than 200 pages of well-documented argumentation, which negate any contrary allegations and of course the speculations that hit the general public especially in the last 16 months. On this occasion I would like to warmly thank-besides my family and the loyal circle of close friends-the lawyers that defended the case on our behalf. In particularly, Αndrei Burz-Pinzaru, Leontin Trifa, Radu Straut and Andreea Serban from Reff&Associates and Florin Dutu from Voicu&Filipescu".
Such a precedent is extremely important for all markets players, bringing certainty with respect to the correct interpretation of the law in such matters. During the four years of the case, the defense attorneys relied extensively on the EU capital markets legislation, interpretations and best practices, including norms and recommendations issued by the EU and national authorities as well as doctrine and jurisprudence at the EU and national level which were upheld and quoted by the Tribunal and Court of Appeal to substantiate the acquittal decisions. Apart from the technical complexity of the file, this is one of the largest capital market litigation cases at the European level considering the value of the transactions involved.
According to Reff&Associates, the decision is of significant importance for investors, financial intermediaries and issuers for a number of reasons:
1. It confirms that negotiations between investors regarding transactions on the Deal Market of the Bucharest Stock Exchange is not per se a form of market abuse and is not punishable by criminal law;
2. It confirms that the Deal Market is not susceptible to market manipulation by maintaining the prices at an abnormal or artificial level or by acting in view of creating a dominant position over the offer/demand of financial instruments having as effect price fixing or the creation of other incorrect trading conditions;
3. It indicates the rigorous standards to be used when assessing the concepts of "inside information" and "insider dealing";
4. It clarifies the relevant differences between the usage of the general term of "market abuse" and the distinctive features of "market manipulation", "insider dealing" and "unauthorized transfer of insider information", which represent different offences (whether criminal offences or not);
5. It emphasizes the essential role of the securities regulator in assessing suspicious transactions from a capital markets technical perspective. Given its essential role in maintaining a safe and stable environment in the capital market, the exercise by ASF of an active role is essential in order to differentiate in an early stage between market abuse cases and normal market practices. As known by the market participants, there is a major difference between so-called "suspicious transactions", which must be notified to the supervisory authority for investigation, and actual market abuse cases.
The European securities guidelines emphasize this aspect by indicating expressly that not all transactions which may appear as "suspicious" (and hence must be reported to the securities regulators) are necessarily market abuse cases. Notably, in developed markets like the UK, it is the Financial Services Authority which decides whether to initiate criminal proceedings, which is only natural given the specific technical aspects of the securities markets and the in-depth level of expertise and access to data and market practices which is required in the assessment of such complex matters;
6. Finally, the whole case should be seen also as a red flag for all the capital markets players, as it shows that the public authorities are scrutinizing securities transactions with particular care. In this case the solutions issued by the courts at all the levels of jurisdiction were positive ones, confirming the legitimate conduct of the parties involved. However, the capital markets actors (whether investors, brokers or issuers) should be aware of the risks posed by securities transactions in a highly complex and not always very clear regulatory environment, particularly in the context whereas the market trends, both in Romania as well as at EU level are towards a constant increase of scrutiny from the authorities with respect to potential market manipulation and insider dealing. Notably, very recently the European regulatory framework for market manipulation and insider dealing has been significantly amended. Specifically, on 12 June 2014, Regulation No 596/2014 on market abuse and Directive 2014/57/EU on criminal sanctions for market abuse have been published in the Official Journal of the European Union. It is expected that the new rules on market abuse will strengthen the existing framework to ensure market integrity and investor protection and will lead to an increased monitoring and enforcement of the rules by the regulators;
7. Last but not least, the assessment of potential market abuse cases should always be grounded on the key principles set forth in the Market Abuse Directive which, as also repeatedly emphasized in the rulings of the European Court of Justice, state that "the purpose of the directive is to protect the integrity of the financial markets and to enhance investor confidence". Such desiderate requires on one hand a level of general awareness of the market abuse prohibitions and strict compliance with such rules but equally call for a clear and consistent interpretation of the relevant legal concepts by the supervisory authority and the courts in order to secure a sound and stable capital markets environment.