Legal opinion on Chairman of conglomerate FLC, Mr.Trinh Van Quyet failing to report his sale of nearly 75 million FLC shares

by Apra Law

Serious violations of share trading regulations

Mr. Trinh Van Quyet is FLC’s Chairman of the Board of Directors and also a member of the Board of Directors, major shareholders and internal actor of FLC, according to the provisions of Point d, Clause 1, Article 41 of the 2019 Law on Securities (“Securities Law”) on rights and obligations of public company’s major shareholders: ‘Not take advantage of the major shareholder’s status to influence rights and interests of the company and other shareholders; disclose information as prescribed by law’. According to Clause 5, Clause 6 of Article 41, as a member of the Board, he may report and disclose information when trading the company’s shares, disclose their related interests; and he may not use the information that is obtained due to their positions for selfish purpose or to serve other organizations or individuals.

Mr. Trinh Van Quyet’s act of selling nearly 75 million FLC shares without reporting or disclosing information is a serious violation of the securities laws, causing great damage to investors and put negative impacts on the stock market. Article 12 of the Securities Law stipulates that it is strictly forbidden to disclose false information to conceal true information or omit necessary information in a manner that causes misunderstanding, adversely affects the offering, listing, trading, investment of securities and provision of securities-related services (Article 1).

From the perspective of administrative violations: The fact that Mr. Trinh Van Quyet sold 74.8 million FLC shares but did not report or disclose information before performing the transaction is a violation of regulations on information disclosure. According to Clause 1, Article 33 of Circular No. 96/2020/TT-BTC of the Minister of Finance dated November 16, 2020 guiding information disclosure on the stock market. According to the provisions of Decree No. 156/2020/ND-CP of the Government dated December 31, 2020 on sanctioning of administrative violations in the field of securities and securities market, amended and supplemented by Decree No. 128/2021/ND-CP (hereinafter referred to as ‘Decree No. 156’), the act of failing to report the expected transaction for transactions over VND10 billion shall be handled as follows:

– Penalties: Mr. Quyet can be fined from 3% to 5% of actual value of sold securities but not exceeding VND 1.5 billion (Point h, Clause 5, Article 33 of Decree No. 156). In addition, Mr. Quyet may subject to an additional penalty, ‘Securities trading shall be suspended for a period of 03 – 05 months’ (Point b, Clause 7, Article 33 of Decree No. 156).

– Remedial measures: It is possible that Mr. Quyet shall be subject to remedial measures such as: Being enforced withdrawal of issued or offered securities; return of payments for securities or deposit (if any) plus interests calculated according to the interest rate specified on bonds or demand deposit interest rate announced by the bank at which the violating entity’s account is opened for receiving payments for securities; being enforced transfer of illegal benefits or revenues obtained from the administrative violation (Point a, d Clause 3, Article 4, Decree No.156).

Besides, the Ho Chi Minh City Stock Exchange (HoSE) has decided to cancel transaction of 74.8 million shares sold by FLC Chairman on January 10, 2022. This is a measure to help investors overcome part of the damage when they are refunded the money to buy shares. HoSE’s decision to cancel the transaction is a reasonable and grounded measure, because according to the provisions of Clause 2, Article 22 of the Regulation on Securities Trading at the Ho Chi Minh Stock Exchange, ‘in case the established transaction violates the trading regulations, or seriously affects the interests of investors or the entire transaction on the market, the Stock Exchange may recognize or cancel the transaction after reporting to the State Securities Commission of Vietnam’.

From the perspective of civil law violations: Mr. Trinh Van Quyet’s behavior has caused great damage to shareholders, so Mr. Quyet is also at risk of facing a claim for damages of the shareholders and even other related investors such as those who traded FLC shares under agreements, and who traded FLC family stocks (ROS, AMD…). If investors and shareholders have grounds to prove specific damages, they can completely demand compensation from Mr. Trinh Van Quyet according to Articles 584 and 589 of the 2015 Civil Code, specifically damages caused by infringement of property. Although HoSE canceled the transaction of 74.8 million shares of Mr. Quyet, it has not been able to remedy all the damage to investors and the stock market. Not only investors who traded FLC shares on January 10, 2021 suffered heavy losses, but securities companies also lost service fees from the transaction of 74.8 million FLC shares conducted by Mr. Quyet. Morever, according to financial experts, the influence of FLC stock trading on January 10 still has a negative impact on the following days. For example, on January 12, FLC shares were sold almost to their limit on the stock market when they decreased by 6.78% in value, equivalent to 1,350 VND/share. Thus, with more than 709 million shares outstanding, FLC stock lost nearly 1,000 billion dong in market capitalization this morning. If calculated from January 10 to 12, FLC stock has lost up to 4,000 dong, which means 2,900 billion dong of market capitalization.

Thus, the damage is not small and it is very likely that Mr. Quyet will face a civil lawsuit demanding compensation for damage from the relevant securities investors.

Shall the behavior of FLC Chairman, Mr. Trinh Van Quyet be liable to criminal prosecution?

The 2015 Criminal Code, amended and supplemented in 2017 stipulates four types of crimes in the securities field, considering the behavior of Mr. Trinh Van Quyet, it is likely related to three crimes: Provision of false information or concealment of information in securities activities (Article 209); Use of internal information for trading securities (Article 210); Manipulation of securities market (Article 211).

Among the above three crimes, it is likely that Mr. Quyet’s behavior shall be charged with provision of false information or concealment of information in securities activities. Article 209 of the Criminal Code holds that any person who deliberately provides false information or conceals information in offering, listing, trading securities, market organization, registration, depositing, clearing or paying for securities shall be subject to criminal sanctions depending on the severity. According to press information, in 2017, the State Securities Commission (SSC) issued a decision to fine Mr. Quyet VND65 million for selling VND57 million shares but not reporting transaction information to the SSC and HoSE, so this is not the first time Mr. Quyet has committed this violation. According to point c clause 1 Article 209 of he Crimnal Code, the offender who has incurred an administrative penalty for the same offence shall be liable to a fine of from VND 100,000,000 to VND 500,000,000 or up to 02 years’ community sentence or 03 – 24 months’ imprisonment. Besides, during the investigation, if it is proved that the damage caused to the investors is more than VND1 billion, or the illegal profit is over VND500 million, then there shall be a firmer and more convincing conclusion about Mr. Quyet’s crime. In addition to the main penalty mentioned above, Mr. Quyet may also be banned from operating in certain fields or raising capital for 01 – 05 years.

Regarding to manipulation of securities market crime (Article 211), to consider whether Mr. Quyet’s conduct constitutes this crime, it is necessary to investigate, evaluate and conclude on the value of the illicit gain or the loss to the investor, as well as consider whether Mr. Quyet’s trading behavior creates artificial supply and demand, manipulating stock prices or not. However, proving the manipulation of the stock market along with damages to prosecute and adjudicate according to this crime is not simple because the Criminal Code does not have clear regulations and there is no guiding document for such crime.

We believe that, if only administrative sanctions for this act are imposed, it is not commensurate with the level of violations, not enough to deter and prevent repeated violations of Mr. Trinh Van Quyet and other investors. Therefore, the competent authority needs to conduct an investigation and clarify the criminal signs for Mr. Trinh Van Quyet’s illegal offering of shares to have a severe punishment commensurate with the dangerous levels of behavior to other investors and the Vietnamese stock market.


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