Any company that decides to go on the Stock Market and publicly offer its shares must first go through a rigorous control procedure that authorizes it to do so. This was explained to El Observador by the partner of the firm Bragard Abogados, Jean Jacques Bragard and pointed out that in Uruguay this process is carried out before the Central Bank of Uruguay, while in the United States it is before the Securities and Exchange Commission.
“The rules of corporate governance, management and flow of privileged information, market conduct, relevant events, related parties, and various other aspects constitute the new standard of demand when going public,” Bragard explained. The firm’s partner remarked that in case of straying from these parameters, there may be sanctions that vary depending on the market in question and range “from administrative, civil and even criminal.”
One of the most relevant documents for the investor is the informative prospectus, or brochure. As he explained, this is the information provided to investors when making a responsible and informed investment, and its content must be clear, sufficient, truthful and timely.
“If the prospectus contains inaccuracies or omissions, or false or incomplete information is published, investors could pursue a civil lawsuit for liability for damages caused,” Bragard said.
Continuing with this example, those who can initiate claims are the investors who have directly acquired the share or also those who have acquired it in the secondary market. “In some countries, the regulator can also file a lawsuit,” said the lawyer.
Transparency is the value par excellence in the stock market, which is why listed companies are exposed to “intense due diligences (legal audits) and, in addition, experts must review the company’s documentation and provide opinions, they must present financial statements in specific formats with very broad levels of openness of information. Company valuations are made to obtain the value per share, risk rating agencies, underwriters, broker dealers, among others, participate”, highlighted Bragard.
In this sense, Bárbara Mainzer, financial consultant and benchmark for the CFA Institute, pointed out that in the past there were frequent problems, “incorrect numbers” and that the disclosure of information left something to be desired. “Before it was not illegal to spread rumors and benefit from it,” recalled the specialist. As the years went by and with the crisis of 1929 as the breaking point, the regulation put a stop to inappropriate maneuvers.
“Today it is forbidden to give false information for personal gain, as well as operating with privileged information—buying when you know that the stock is going to rise, for example—” Mainzer said.
A lesson for investors
Mainzer stressed the importance of investment diversification as a key action in order not to be vulnerable when drastic falls in corporate shares occur. “Modern portfolio theory says that you have to diversify appropriately, acquire assets that combine well with each other,” he stressed and remarked that too many shares of the same company or the same category should not be concentrated if risk is to be dissipated. .
The dLocal case
The actions of the Uruguayan dLocal They fell 51% this Wednesday on the New York Stock Exchange to US$ 10.5, after learning of a critical report by the US investment and research company Muddy Waters Capital. With this, the market capitalization was reduced from US$ 6,455 million to US$ 3,155 million.
As reported by the Reuters agency, the move came as Muddy Waters founder Carson Block is being investigated by the Department of Justice as part of a broader investigation into short sellers and hedge funds centered on suspicions of coordinated operations to manipulate markets.
That same day, the Uruguayan company released a statement stating that the report contained “numerous inaccurate statements, unsubstantiated claims and speculation” and added: “short seller reports are often designed to drive the stock price down to serve the interests of the short seller to the detriment of the company’s shareholders.
In the last days of the week, dLocal shares rebounded slightly. This Friday the share closed at US$12.78, while its minimum value was seen last Wednesday at US$10.46.
