Capital Market Crimes

By Betül Önal On Jul 26, 2023

The capital market refers to the markets that bring together the supplier and demander of medium and long-term funds and provide financing on favorable terms and at low cost to those in need of funds. A healthy and accurate flow of information about capital market instruments and their issuers is very important to ensure the functioning of the capital market. To ensure confidence in the capital market, it is necessary to prevent unlawful profits from finagling and fraudulent behavior. In this context, the Capital Market Law No. 6362 (“CML”) has been amended and a number of measures, obligations and criminal sanctions have been introduced.

As Şengün Capital Markets and Finance Centre, our previous article explained the crime of market fraud regulated by the CML, and this article shall provide information on (i) insider trading, (ii) irregularities in legal books, accounting records and financial statements and reports, and (iii) Improper public offer and unauthorized capital market activity among the capital market crimes regulated by the CML.

INSIDER TRADING

Insider trading is regulated by Article 106 of the CML. According to this article, any person mentioned below, who gives purchase or sale orders for capital market instruments or changes the orders they have given or cancels them and thus provides a benefit to themselves or someone else based on information concerning directly or indirectly capital market instruments or issuers which can affect the prices of the related capital market instruments, their values or the decisions of investors and which have not been declared to the public yet, is guilty of misuse of information.

a) Managers of issuers or those of their subsidiaries or their controlling corporations,

b) Persons who possess this information by holding a share in issuers’ corporation or in their subsidiaries or their controlling corporations,

c) Persons who possess this information due to the performing of their jobs, professions and tasks,

ç) Persons who obtained this information by committing crimes,

d) Persons who know that the information they possess is of the nature mentioned in this paragraph or that should know it in the case when demonstrated.

In addition to the offense of insider trading, the CML provides that the situations listed in Article 108 may not be considered insider trading. Within this scope, the following cases shall not be considered as insider trading.

a) Applying policies of money, foreign exchange rate, public debt management or realizing transactions aimed at providing financial stability by the Central Bank of the Republic of Turkey or another authorized official institution or persons acting on behalf of them,

b) Repurchase programs applied according to the Board regulations, share acquisition programs directed to workers or allocation of other shares directed to the workers of the issuer or his/her subsidiary,

c) Making the purchase and sale of capital market instruments or giving or canceling orders to support exclusively the market price of these instruments for a pre-determined period, provided that these operations are performed in conformity with the regulations of the Board in the context of this Law regarding the price stabilizing operations and market maker,

IRREGULARITIES IN LEGAL BOOKS, ACCOUNTING RECORDS, FINANCIAL STATEMENTS AND REPORTS

Irregularities in legal books, accounting records, financial statements and reports are regulated in Article 112 of the CML. In this context, those who intentionally; a) Do not duly keep the books and records they are legally obliged to keep, b) Do not preserve the books and documents they are legally obliged to preserve throughout the legal period, shall be sentenced to prison from six months up to two years and punished with judicial fine up to five thousand days.

Those who intentionally; a) Draw up the financial statements and reports so as not to reflect the truth, b) Open accounts contrary to facts, c) Commit all kinds of accounting frauds on records, ç) Draw up wrong or misleading independent audits and assessment reports as well as the responsible managers or members of the board of directors of issuers who provide their drawing up, shall be penalized according to the related provisions of the Law numbered 5237. However, to impose a penalty due to the crime of forgery on private documents, the usage of the forged document shall not be stipulated.

IMPROPER PUBLIC OFFER AND UNAUTHORIZED CAPITAL MARKET ACTIVITY

The regulation of Improper public offer and unauthorized capital market activity is governed by Article 109 of the CML. Anyone who makes public offers of the capital market instruments without fulfilling the obligation of publishing an approved prospectus or those who sell the capital market instruments without an approved certificate of issue shall be sentenced to imprisonment from two years up to five years and punished with a judicial fine from 5,000 days up to 10,000 days.

Those who perform unauthorized activities in the capital market shall be sentenced to imprisonment from two years up to five years and be punished with a judicial fine from 5,000 to 10,000 days. Those who commit this crime at the same time as the crime defined in the first paragraph, shall be fined only due to the crime defined in this paragraph and the fine shall be increased by half.

In addition to the above-mentioned capital market crimes regulated by the CML, there are crimes on the abuse of confidence and forgery as defined in Article 110 of the CML, withholding information and documents, preventing the auditing as defined in Article 111, and breach of confidentiality as defined in Article 113.