Case II ”Kansallisanti” Tuulia Kallioniemi, Tuomas Kontola, Aapeli Laitinen, Janni Lapinkangas, Sakari Suonpää

Facts of ”Kansallisanti” Kansallis-Osake-Pankki (KOP) and Suomen Yhdyspankki (SYP) were two the biggest banks in Finland up to 1995 There was in Finland The Finnish Banking Crisis of 1990s. Background of the banking crisis was that financial market deregulated in Finland. This resulted in excessive lending and borrowing of banks. Due to the banking crisis, Kansallis-Osake-Pankki needed money and organized a share issue in 1994 (so called ”Kansallisanti”) KOP got over 2 billion marks In 1995 KOP and SYP merged. The merged banks new name was Merita Bank Ltd

…Facts continue KOP`s shareholders got one Merita share for three KOP share After merged, some subscribers of shares demanded in court from KOP, because: Plaintiffs argured that: Major shareholders should have promised in advance to subscribe shares to an amount of at least one billion FIM, but in reality subscription orders of major shareholders was only 240 million FIM KOP Bank didn`t give hints about that it will merger with SYP bank in next spring Before issue of shares plaintiffs argured that KOP bank had gave false information about its economic status. In reality it was something else that they had said

Legal Liabilities on Securities Markets Damages Law -> 1) Contract Law and 2) Tort Law Securities Markets Act (chapter 16, section 1 and 2) -> Basis for the liability for damages ” Anyone who deliberately or negligently causes damage through procedure that is against this Act or against provisions issued thereunder shall be liable to compensate the damage he has caused. “ “The damage is deemed to be caused by negligence unless the person responsible for the procedure shows that he or she has acted carefully”

Market Fraud Theory Main assumption: Investors has all material information available from the company and it’s business But there is a possibility for misstatements or ”hidden” information (things that investor should know anyway) In the big scale misstatements have an influence both the entire market and to stock prices Misstatements affects also to individual person (e.g. investors)

Market Fraud Theory This theory applies to SEC rule 10b-5, which states that any acts or omissions resulting in fraud in connection with purchasing or selling securities are forbidden

Kansallisanti-case connected to MFT 1 The accused marketed the securities with misleading information or misstatement 2 Small investors believed the claim that big investors had already invested with over 1000 million FIM (the reality was 236million -> much less) 3 Misleading information brought the small investors in and they made also big investments -> Major benefit to the KOP (National-Stock-Bank) 4 Probably the small investors wouldn’t have participated to the stock issue so strongly, if they knew the truth about the real amount of investments 5 Conclusion: The starting point of ”Kansallisanti-case” has same kind of characteristics as the Market Fraud Theory includes (e.g. misstatements, influences to investors and market)

Prerequisites for Damages Liability 1.Damage of compensable category – pure economic loss You can’t eliminate market risk  how do you calculate loss? 2.Negligence – who is liable and how do you prove it? Underwriter The firm & its directors 3.Causal relationship Were the investments in the shares made based on false information? If the information had been different, would the investor still have invested?

Case Supreme court 2000: 82 Securities Market criminal Requirements for the Helsinki District Court The prosecution had demanded penalty for A in the securities market criminal because A had marketed the securities giving false or misleading information B who had subscribed shares, did not have a plaintiff right to speak B stated that A had intentionally: 1) marketed securities giving untruthful or at least misleading information; and 2) acquired the securities according to the procedure inappropriately and in violation of good faith Unlawful marketing lead a risk of making a mistake of investment decision for the essential point Separate action for damages against the bank The right to claim damages from A on the basis of criminal proceedings B require to A penalty base of the Securities Markets Act A’s Response B aren’t in the position of the plaintiff B would not therefore entitled to raise a penalty requirements Insisted that penalty requirements is inadmissible

The district court decision on The Securities market offenses and violations: - Focused on extensive, accurate undefined audience - Broke the public confidence in securities markets and their functioning position By case law the plaintiff is: - Whose right to good is the offense violated - on which it was born through a private crime, a legal requirement Those accused of crimes were not insult the plaintiff of the right to a good -> these were not the proceeds of crime emerged private legal claim The District Court failed B of the penalty sought by inadmissible. The dissenting opinion: Accused 2: Retail investors were the plaintiff Accused 1: The crime wasn’t the plaintiff -> B’s claims made by the dismissal as inadmissible

Helsinki Court of Appeal decision B appealed against the Court of Appeal and require the position of the plaintiff Appellants submit that they were born offenses are private legal requirement The Securities Markets Act penal provisions are aimed to protect of integrity and the functioning of the securities markets, the so-called public good So B is be considered as the plaintiff in the question of criminal proceedings B claimed that they had suffered economical loss because of the incorrect marketing -> a private-law claim to the investors -> B they had a role and voice of the plaintiff The district court did not, therefore, should have been denied B concerned the right to be heard -> The Court of Appeal overturned the District Court's decision and returned the case to the District Court APPEAL SUPREME COURT A was granted leave to appeal A demanding, that the Court of Appeal decision being quashed and the matter is left to the district court decision B responded to the appeal

SUPREME COURT RULING Arguments B had demanded for A penalty in the securities market offenses The issue was whether they have the right to introduce a penalty requirement On the Securities Market Act is not specified of the plaintiff or who has the right to demand punishment for related crimes The use of sanctions is possible when confidence in the securities market has been shaken by the proper functioning or the impartiality of negligence Securities Market Crime is directed characteristically broad accurately indeterminate a set Although the Securities Markets Act, penal protected indirectly to all the customers of securities markets, they have no right to prosecute on that basis Crime is only fulfilled the provisions of rule breaking -> B's damage suffered could not have caused the securities market offenses -> Court of Appeal should not have been imposed B's penalty requirement for examination nor refer the case back to the district court Resolution The Court of Appeal decision being quashed and the matter is left to the district court decision