Securities Litigation El Salvador
This month, Lawyer Monthly takes a look at the issue of Securities Litigation, in light of the recent news that a former executive at a Coca-Cola bottling company was charged by the Securities and Exchange Commission with insider trading. To find out more about this highly topical subject, we speak to Francisco Molina from law firm, Portal & Asociados.
What are the key types of cases you deal with related to securities litigation?
In the Securities area, I have participated in: filling and cancelation of fillings for issuers; and in the promotion of “Asset Securitization”, for which an alliance has been made with the only Securitization Company, advising primary and secondary Market operations.
Have you witnessed an increase in securities litigation cases since the economic downfall?
In El Salvador, stock trades are rare so the number of disputes in this area is low. However, this type of financing in El Salvador represents an opportunity for Companies, especially because most part of the saving population is looking for a new kind of investment that can compete - in benefits -with traditional banking instruments.
Recently, a former executive at a coca-cola bottling company was charged by the Securities and Exchange commission with insider trading, emphasising the legal risks taken by companies across the world when embarking upon deals and transactions, which may involve sensitive information. What are your opinions on this?
It is quite complicated to control the risk of employees using privileged information. Nevertheless, I strongly consider that it should be exhaustively regulated since it could constitute a fraud, causing a rupture primarily on investors’ belief in the system. This type of fraud consists in the use of extraneous information on behalf of employees or Companies administrators given that the information belongs to the Company. The damage caused by the use of sensitive information compares to the damage produced in the Financial System with bank failures as a result of fraud. In El Salvador, the use of sensitive
information is punished with monetary fines and also forces third party beneficiaries to return any profit that derives from it.
What would your advice be to companies to avoid this type of trouble?
An option to avoid this type of trouble is the use of Confidentiality Agreements and Settlements that rule the purchase of securities by the employees and administrators of the Issuing Companies. These agreements should include substantial penalties that discourage the use of privileged information for profit purposes.
Salvadoran Securities’ Market Act and it has not experienced any type of additions or changes recently. It is important to note that besides the mentioned Act, there are laws for the dematerialization of securities and securitization of assets, so it can be established that there is a basis for the development of a Securities’ Market that will be able to contribute to business development as well.
How do you see the future of securities litigation progressing?
In El Salvador, stock
trades are rare so the number of disputes in this area is low
What are the main challenges/ complexities surrounding this practice area in your country at the moment?
The first challenge relates to the lack of a specialized and comprehensive legal framework applicable to these types of cases. The second challenge is the lack of specialized knowledge regarding the topic on behalf of Companies, litigators and Authorities. These situations can and will be resolved as the Salvadoran Stock Market evolves.
Have there been any relevant legislative changes recently?
The subject matter is minimally regulated by the
In both Latin America and in the United States the regulation of the Securities’ Market and the use of sensitive information will increase. Without a doubt, the confidence in the system will be restored when litigation on this matter increases. LM
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