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Monday, December 5, 2022

Combating securities crimes: legal problems and solutions

Updated: 14:39’ - 27/05/2013

Vien The Giang, LL.M.
Law Faculty
Hue University

This article points to some legal problems in the handling of securities market scams and proposes several measures to effectively prevent and fight this type of crime on the country’s developing securities market.

As a new type of economic crime, securities crimes are prescribed in the 2009 Law Amending and Supplementing a Number of Articles of the 1999 Penal Code (the amended Penal Code). Over the recent years, illegal acts committed on the securities market have soared in both number and degree of danger to the society. Damage to the economy caused by securities-related violations is usually great. However, the danger of these violations to the society is shown not only through the economic damage inflicted but also through their prolonged adverse impacts on the securities market.

In a fledging securities market like Vietnam’s, the investigation and handling of securities crimes require clear definition of these crimes and their complicated socially dangerous nature and characteristics as well as great efforts of investigative offices, management agencies, stock exchanges, securities companies and investors.

Basically, securities crimes are categorized into two groups. The first group consists of securities crimes prescribed in Chapters XIV and XVI of the 1999 Penal Code and usually known as swindling for appropriating property; making, storing, transporting or circulating counterfeit valuable papers; or counterfeiting stocks (commonly referred to as the crime of counterfeiting goods), etc. The second group includes specific securities crimes prescribed in Articles 181a, 181b and 181c of the amended Penal Code (namely, intentionally disclosing false information or concealing truths in securities activities; using insider information for securities trading; and manipulating securities prices).

Securities crimes are defined as acts dangerous to the society prescribed in the Penal Code, committed intentionally by persons having the penal liability capacity, and infringing upon social relations related to activities of the securities market. The characteristics of these crimes are further analyzed below:

Firstly, their danger to the society can be judged from three aspects:

(i) Badly impacting the order of and the supply-demand balance on the market, especially securities prices, and creating sham demand on the market;

(ii) Causing damage to investors on the market; and

(iii) Affecting the sustainable development of the market and undermining the confidence of investors.

In reality, the identification and proving of securities crimes are not easy for they involve sophisticated acts which can be either lawful investment techniques or frauds and it is hard to collect prima facie evidences to prove criminal acts and to identify damaged parties (victims), the degree of damage and responsibility to pay compensations.

The clarification of danger to the society of these crimes would help handle them in an accurate, objective, fair and lawful manner.

Secondly, these crimes are prescribed in the criminal law, which provides the ground for criminally handling serious violations of the securities law instead of administratively handling them with milder penalties. Only persons who commit a violation of the securities law which is prescribed as a securities crime in the Penal Code can be criminally handled.

Thirdly, securities crimes are always intentional acts.

Fourthly, securities crimes are subject to three principal penalties, including fine, non-custodial reform and termed imprisonment, and to additional penalties such as fine (when not imposed as a principal penalty) and ban from holding certain posts or practicing certain professions for between one year and five years.

Legal problems in the combat of securities crimes

Since the effective date of the amended Penal Code, only one case of securities crime has been prosecuted. Many other securities frauds could only be fined due to some inadequacies of the criminal law.

First, the handling of some securities frauds as swindling or abuse of trust for appropriating property is correct but fails to clearly expose new criminal elements of these crimes. The determination of the degree of their danger to the society is based only on material damage caused, neglecting other bad impacts on the securities market.

Second, the securities and criminal laws do not specifically provide how to identify the value of damage caused by securities crimes. Such value in many cases cannot be identified due to fluctuating prices of securities. Besides, the lack of clear-cut description of subjective and objective aspects of securities-related violations also makes it very difficult to charge violators with a certain crime in the above-mentioned first group of securities crimes. For example, persons colluding with others in securities trading in order to create sham supply and demand, colluding with or inciting others to conduct arbitrage in order to manipulate securities prices, and using other trading methods to manipulate securities prices, may all be charged with the crime of speculation, provided such acts fake a scarcity through buying up goods in large quantities for resale to gain illicit profits (subjective aspects) and are committed during a natural disaster, an epidemic or war time and cause serious consequences (objective aspects). Moreover, securities trading activities have their own characteristics, especially speculation which can somehow boost the market.

Third, the criminal law lacks specific definitions and descriptions of acts constituting securities crimes, making it difficult to distinguish similar crimes, such as insider trading and other acts of market manipulation. The amended Penal Code neither defines nor clearly describes what is false or insider information, which acts are regarded as concealing truths in securities registration or depository, or who is an insider (primary or secondary insider). Quantitative elements to determine the establishment as well as degree of severity of these crimes also remain general (serious consequences, big illicit profits).

In reality, many other serious violations of major shareholders of listed and securities companies, typically manipulation involving only one party that purchases and sells its own securities back and forth to earn illicit profits and cause great losses to investors, have so far been administratively sanctioned only. In order to avoid great impacts of those acts on the market, they should be treated as crimes and violators should be prosecuted.

In order to improve provisions of the criminal law on securities crimes, we recommend the issuance of specific regulations which:

l Define the element of “causing serious consequences” which is used to determine the establishment of the crimes of intentionally disclosing false information or concealing truths in securities and manipulating securities prices, and decisive to whether to institute a criminal case against or administratively handle a securities-related violation. Under current regulations, causing serious consequences means causing great property loss and non-material consequences (badly affecting the implementation of the Party’s and the State’s policies, and the fairness, publicity, transparency and safety of the securities market) as prescribed in legal documents on securities and securities market or relevant legal documents[1].

l Specify the liability of public companies or public funds for letting their staffs intentionally disclose false information or conceal information in securities activities or letting persons who know undisclosed information related to such companies or funds which might, once disclosed, greatly affect the prices of securities of such companies or funds, use such information to purchase or sell information or disclose or provide such information to others or advise others to purchase or sell securities based on such information in order to gain big illicit profits. To put an end to the situation that many companies or funds that abet their staffs in committing this crime have to face only administrative sanctions, we propose an additional penalty of banning those companies or funds from listing or trading in securities for a definite or an indefinite time, apart from prosecuting their violating staffs.

l Prescribe more securities crimes. To limit the application of other provisions of the Penal Code in handling securities-related offenses, we suggest the Penal Code prescribe as new crimes some other securities-related violations, especially securities purchase or sale by persons banned from securities trading in the name of others, conducting phoney transactions, providing forged documents, falsifying or destroying trading documents for fraud, and fabricating and spreading rumors in order to manipulate the market and cause losses to investors.    

In order to make the above regulations enforceable, we also propose intensified training for criminal procedure-conducting officers to update new acts of violation on the securities market and provide basic economic and legal knowledge and practical experience to those officers; establishment of independent specialized investigative offices in charge of securities-related crimes in Hanoi and Ho Chi Minh City, and teams to fight these crimes in other localities; and improvement of the infrastructure system to serve securities trading and governance of public and listed companies and the awareness of shareholders of these companies about their rights, especially voting right, right to supervise and right to question company managers.-

[1] See Joint Circular No. 46/2009/TTLT-BTC-BCA of March 11, 2009, of the Ministry of Finance and the Ministry of Public Security, guiding coordinated handling of violations in the field of securities and securities market.


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