Finland: Recent Securities Market Offence In Finland

The number of suspected and investigated securities market offences has increased substantially in Finland. Furthermore, the cases have become more extensive and more complicated. The court proceedings of securities market offences tend to be very long as the cases involve an ever-increasing amount of written and oral evidence.

Some of the recent cases derive from the bull market that occurred in the late 1990s and at the turn of the century when several new technology companies were listed on the Helsinki Stock Exchange. It is common knowledge that the valuation of these technology companies as well as the demand for their services and products quickly decreased. The circumstances were exceptional and also tested the limits and application of the issuers’ public disclosure obligation set forth in the Securities Markets Act and related Stock Exchange Regulations.

At the same time, the recent securities market court cases are a consequence of the more active supervision by the Finnish securities markets regulator, the Financial Supervision Authority. Borenius & Kemppinen has successfully represented defendants in the cases described below.

The Satama Interactive case dealt with the alleged disclosure of false and misleading information to the market. The state prosecutor pressed charges claiming that the members of the Board of Directors and the Managing Director of the company had withheld material information concerning a profit warning for two weeks in spring 2000. Borenius & Kemppinen represented one of the members of the Board. The District Court rendered its judgment in summer 2006 and dismissed all charges against the defendants. In reaching this outcome the court found that the defendants had acted carefully, and additionally, the defendants were able to show that they had informed the market of the financial situation of the company without delay once the previous forecasts had been internally updated. According to the District Court, the members of the Board have the right but also the obligation to seek to clarify the financial condition and future predictions of the company before actually going public with a profit warning. Therefore, the publishing of the profit warning in question had not been unreasonably delayed. The state prosecutor has appealed the District Court’s judgement, but the Court of Appeals has not yet ruled on the case.

This case also dealt with the alleged disclosure of false and misleading information to the market. The state prosecutor pressed charges claiming that in connection with the share issue and share sale which took place in 2001 the prospectus contained false and misleading information regarding certain facts that had an essential effect on the value of the share.

According to the state prosecutor, the prospectus included overly optimistic predictions of the future prospects of the company. The charge also alleged that the interim accounts attached as an appendix to the prospectus were "manipulated". The state prosecutor brought an action against the majority shareowners, the members of the board of the company as well as the Managing Director of the investment bank acting as the principal organiser of the offering (who was eventually represented by Borenius & Kemppinen). For the Managing Director of the investment bank, it was essential to establish before the District Court that the organiser had acted diligently and that the bank as the arranger had independently verified various facts affecting the overall economic situation of the company with the assistance of outside experts and advisors and consequently that the information presented in the prospectus was not of a false nature. The District Court issued its ruling on the case in January 2006 and in practice dismissed all charges. The state prosecutor has appealed the verdict to the Court of Appeal but only with respect to the majority shareowners, who were also active in the company. The acquittal of the Managing Director of the arranging bank is final.

This case dealt with the alleged abuse of inside information. Kone Oyj had made a public tender offer for the shares of Partek Oyj in May 2002. The Finnish Financial Supervision Authority and the police suspected that the then Deputy Chairman of the Board (who was represented by Borenius & Kemppinen) and the Secretary of the Board had committed an abuse of inside information, as the investment company owned by the suspects had executed transactions with the shares of Kone Oyj and Partek Oyj between December 2001 and April 2002. The Financial Supervision Authority and the police concluded that there was already a concrete and ongoing undertaking by Kone Oyj aiming to launch a public tender offer for Partek Oyj ‘s entire share capital while the transactions on both shares were being executed. However, this widely publicized case did not proceed to trial before the district court hearing as the state prosecutor waived all charges with respect to both suspects. For the defendants it was fundamental to establish during the police investigation and the consideration of the charges by the prosecutor that no concrete undertaking on the tender offer existed at the time that the share transactions took place.

Borenius & Kemppinen is currently assisting parties in two other cases relating to alleged securities market offences dealing with an alleged failure to issue a timely profit warning as well as abuse of inside information.

The police and the regulatory authorities have greater resources and have increasingly focused their attention on securities markets violations or alleged violations. There are currently several cases in the investigation phase, some of which will also be tried in the courts. Up to this point the Finnish securities markets have lacked clear guidelines and a framework deriving from court practice, and while there remain no landmark precedents, the cases quoted above have only offered certain preliminary guidance on the (for example) issuer’s and its board’s duties relating to profit warnings and disclosure obligation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.