i Forms of action
As mentioned above, security claims may also be enforced by public authorities. In this area, the most relevant actions are those that may be taken by CONSOB and by the public prosecutor.
According to the Consolidated Law on Finance provisions, CONSOB and the public prosecutor shall cooperate and exchange information to facilitate the ascertainment of the violations perpetrated by the market players, including those considered non-criminal.
It is not uncommon, for administrative and criminal actions commenced by a public body such as CONSOB on the one side, and the public prosecutor on the other, to overlap. In such cases, the Consolidated Law on Finance provides that the criminal proceedings shall not be suspended and both administrative and criminal financial penalties may be imposed upon the same party for the same violation within specific thresholds set forth by the law. Such a mechanism has raised some concerns in recent years in terms of compliance with the ne bis in idem principle, as also made clear by the ECHR (see decision Stevens v. Italia, dated 4 March 2014), by the Constitutional Court (see Decision No. 102, dated 8 March 2016) and by the Court of Justice (see Decision Nos. C-524/15, C-537/16 and C- 596/16 merged with C-597/16).
The debate that developed around this topic ultimately led to the amendment of certain provisions of the Consolidated Law on Finance. Indeed, Legislative Decree 107/2018 now provides that if a proceeding – either criminal or administrative – is followed by a subsequent proceeding against the same (legal or natural) person and concerning the same breach, then the penalty shall be imposed upon the offender taking into account the punitive measures already taken as a result of the first proceeding and, in any case, within the limits of the part possibly exceeding the measure already taken as a result of the first proceeding by the administrative authority or by the judicial authority, as the case may be.
However, it has been noted that for the time being the legislative authority has not yet taken into consideration the fact that the violation of the ne bis in idem principle may in theory occur not only in cases of overlapping penalties, but also in the event of two different proceedings against the same (legal or natural) person actually overlapping.
Nevertheless, it has subsequently been clarified that Legislative Decree No. 107/2018 constitutes only a minimum intervention on the Consolidated Law on Finance text, and a later improvement cannot be excluded.
The proceedings before CONSOB commence with the serving by the authority of a formal notice upon the involved party. Such a notice shall be served within 180 days of the assessment of the violation (such a term is extended up to 360 days when the communication is to be served outside the Italian Republic). The notice shall contain, inter alia, a reference to the supervisory activity carried out by the authority, a description of the alleged infringement and an indication of the provisions allegedly breached along with the relevant penalties.
Within 30 days of receipt of the notice, defendants may file briefs, documents and applications to access the official file or to ask to be personally heard about the alleged violations.
The competent office shall analyse the documents and draft a final report on the matter, also proposing the nature and measure of the sanction or the dismissal of the charges, to be forwarded to the defendant and to a specific CONSOB commission.
The defendants may submit their own written counter-arguments to the commission in response to the report.
The proceedings shall be concluded within 200 days, running from the 30th day after the date that the formal notice is served. This term may, however, be suspended in certain cases.
The decision shall include the adoption of penalties, dismissal of the charges or a proposal to apply a sanctioning measure falling within the competence of another administration or authority. The penalty measure is then communicated to the defendant and an extract is publicised in the CONSOB Bulletin.
The penalty measure can be challenged before the competent Court of Appeal within 30 days starting from the communication of the measure, or 60 days if the applicant resides abroad. The decision of the Court of Appeal can be challenged only within the limited scope of the correct application of the pertinent laws before the Supreme Court.
In recent years, some concerns have been raised in terms of potential violation of due process and the rights of defence of the defendant within the context of the public enforcement conducted by CONSOB. In that respect, however, it has been noted that the rights of defence as set out by the Italian Constitution should only refer to the jurisdictional proceedings and not to the administrative ones carried out by independent authorities, such as CONSOB.
In 2016, a new CONSOB Regulation entered into force that apparently further safeguards the rights of the party under investigation. However, there are still some issues to be tackled. By way of example, after the preliminary ruling request submitted by the Italian Constitutional Court by order No. 117 dated 10 May 2019, the Court of Justice, by a judgment dated 2 February 2021, clarified that the nemo tenetur se ipsum accusare principle – according to which no one is bound to incriminate or accuse him or herself – may also be claimed in the administrative proceedings handled by CONSOB, if they may lead to the imposition of administrative sanctions of criminal nature or to criminal liability.
To illustrate the procedure of criminal claims, the first phase (the investigation phase) is handled by the public prosecutor with the supervision of the judge in charge of the preliminary investigation. The claims are then assigned to the judge in charge of the preliminary hearings and, lastly, to the court.
The criminal prosecution is commenced with the public prosecutor entering the offence in the register of suspected crimes, opening a file against the indicted person.
During the investigation phase, the prosecutor, in cooperation with the criminal police, carries out, under the supervision of the judge in charge of the preliminary investigation, the necessary verifications to establish whether any clues that may lead to the exercise of the criminal action actually exist. This phase is largely covered by secrecy, unless the prosecutor needs to carry out the ‘guaranteed acts’, which cannot be performed without the participation of the indicted person and a lawyer.
Once the investigation phase is closed, the public prosecutor may ask the judge in charge of the preliminary investigation to dismiss the case, or that the case is brought to trial if the public prosecutor deems it has sufficient evidence to support the accusation in front of the judge in charge of the preliminary hearing. The judge in charge of the preliminary investigation may uphold the dismissal request or ask the public prosecutor to uphold the investigation, or even order the public prosecutor to seek criminal trial.
If the public prosecutor, either upon its request or abiding by the order of the judge in charge of the preliminary hearing, proceeds with the trial, the person under investigation shall be notified and shall take part in the preliminary hearing.
At the end of the preliminary hearing, the judge may decide to bring the case to trial, where the case is decided either by a sole judge or by a court comprising three judges.
The decision may then be challenged before the Court of Appeal and the Supreme Court within the limited scope of the review of the application of the laws.
The Consolidated Law on Finance provides that some particular breaches referred to in Article 194 quinquies may be extinguished by paying, within 30 days of the serving of the notice letter from CONSOB (see Section III.ii), a sum equal to twice the minimum amount of the edictal penalty set forth by the law. However, the same offender may not take advantage of this if he or she has already benefited from it in the previous 12 months.
As far as criminal proceedings are concerned, the Italian Code of Criminal Procedure provides the defendant with the possibility to reach an agreement with the public prosecutor, which may include the legal qualification of the conduct or the amount of penalties to be imposed. The agreement is then submitted to the judge presiding over the relevant phase of the proceedings and shall be considered as a standalone and overall proposal. The judge is granted significant powers, therefore, after reviewing the settlement reached in terms of, inter alia, adequacy of the penalty agreed therein, and on the legal qualification of the conduct he may dismiss the request if deemed inappropriate.
Note that the possibility to settle the criminal case has also been recently extended to the appeal phase. In particular, where the defendant has been convicted and has appealed the relevant decision, it may still reach an agreement with the public prosecutor and submit it to the judge of the appeal proceedings.
If a settlement is reached, the person possibly seeking damage compensation is entitled to commence civil proceedings. It is worth noting that, as the Italian legal system does not consider the settlement to be an admission of guilt of the judgment issued as a result of the plea bargaining procedure, case law has not yet taken a firm position on the probation value in compensation for damages in civil proceedings. However, the major guideline seems to be that of considering the settlement decision as an element freely appreciable by the civil judge. In this context, some rulings have gone so far as to affirm that, although the criminal judgment should be considered as an indication, the judge cannot disregard it without giving an explanation in the reasoning.
iv Sentencing and liability
The Consolidated Law on Finance provides for different penalties of criminal and administrative nature and sets forth the criteria to be considered to determine the type and the duration of the applicable penalties.
In particular, the competent administrative authorities (i.e., CONSOB or the Bank of Italy) shall take into consideration all the relevant circumstances, including, inter alia, the seriousness and length of the violation, the degree of liability, the extent of the advantage obtained, the prejudice caused to third parties and previous violations, if any.
However, in some specific cases regarding serious violations, such as insider trading or market manipulation, where penalties up to a maximum of €5 million may be imposed, the Consolidated Law on Finance establishes that the financial penalty may be increased by up to triple or up to 10 times the profit made or losses avoided as a result of the violation. Considering the aforementioned criteria and the entity of the profit of product of the offence, the standard financial penalties appear to be inadequate even when applied to the maximum.
As a general remark, the criminal court is allowed to apply the penalty in a discretionary manner, but taking into account some elements such as age or the significance of the offence, within the limits set by law and providing a reasoning along with the sentence.
With regard to the criminal penalties set forth by the Consolidated Law on Finance for insider trading and market manipulation, the above-mentioned law provides that the judge may increase the financial penalties – usually ranging from €20,000 to €3 million and €5 million respectively – up to three times or up to the greater amount of 10 times the product of profit obtained as a result of the offence, when, due to the seriousness of the act, the personal qualities of the offender or the amount of the profit or product obtained from the offence, the penalties appear to be inadequate even if applied to the maximum.