Confiscation of liquidation proceeds due to market manipulation by the company and its sole shareholder

Facts

The [B. AG] in liquidation (hereinafter: Company) and its sole shareholder and sole authorised signatory [A.] were investigated by the Swiss Financial Market Supervisory Authority (FINMA) in two separate enforcement proceedings.

FINMA opened proceedings against the Company for unauthorised activity as a securities dealer (principal trader) without a licence (Art. 53 FINMASA). In its final ruling of 17 December 2015, FINMA found that the Company had engaged in commercial activity as a securities dealer without a licence and thus seriously violated supervisory provisions (Stock Exchange Act, SESTA). It ordered the liquidation of the Company and refused to grant a retroactive licence. In addition, the Company and [A.] were ordered to pay the costs of the proceedings.

In parallel, FINMA investigated the Company’s trading activity for the period from 3 December 2012 to 5 August 2013. The monitoring body of SIX Swiss Exchange (SIX) submitted an investigation report indicating evidence of systematic market manipulation. In its final ruling of 20 June 2017, FINMA found that the Company had seriously violated supervisory provisions and, in particular, the Stock Exchange Act through its conduct. It confiscated the proceeds from the Company’s liquidation proceedings in favour of the Swiss Confederation and ordered it to pay the procedural costs of CHF 40,000.--.

With regard to [A.] , FINMA found that he had manipulated the market over several years and violated the relevant stock exchange provisions. FINMA prohibited [A.] from engaging in any securities trading activity for a period of eight years and from holding any managerial position with a supervised financial intermediary for five years. In addition, it confiscated an amount of CHF 201,500.-- in favour of the Swiss Confederation and ordered him to pay the procedural costs of CHF 40,000.--.

The Company and [A.] filed an appeal against FINMA’s rulings with the Federal Administrative Court. On 21 May 2019, the Court held a joint public hearing and essentially dismissed the appeals. It merely corrected the confiscation of the share capital of CHF 100,000.-- contributed by the Company’s founder. The appellants filed a single appeal on 24 April 2020 with the Federal Supreme Court and requested the annulment of the Federal Administrative Court’s rulings and the holding of an oral hearing pursuant to Art. 6 ECHR. FINMA requested the dismissal of the appeal.

Considerations

1. Admissibility of the appeal and procedural issues:

The Federal Supreme Court admitted the appeal to the extent that the appellant had met the statutory requirements for the grounds of appeal. It rejected the request for joinder of proceedings, as the three proceedings concerned different FINMA rulings and raised separate legal issues. The Federal Supreme Court also noted that the appellant had not sufficiently substantiated its criticism of FINMA’s ruling, as this had been replaced by the contested ruling of the Federal Administrative Court. Finally, the Federal Supreme Court emphasised that the grounds of appeal must be contained in the appeal itself and may not merely refer to submissions made in the prior proceedings.

2. Legal nature of the confiscation pursuant to Art. 35 FINMASA:

The appellant argued that the confiscation of the liquidation proceeds constituted a criminal measure and that the procedural guarantees of the ECHR (Art. 6) were therefore applicable. The Federal Supreme Court dismissed this argument and held that the confiscation under Art. 35 FINMASA is an administrative sanction aimed at restoring proper conditions. It is neither criminal in nature nor meets the criteria of a “criminal charge” within the meaning of Art. 6 ECHR. The confiscation serves to protect investors and the proper functioning of financial markets and is to be classified as an economic police measure. Therefore, criminal procedural guarantees such as the presumption of innocence or the privilege against self-incrimination do not apply. However, the civil procedural guarantees of Art. 6 ECHR must be observed, as the confiscation concerns “civil rights” within the meaning of this provision.

3. Assessment of evidence and establishment of facts:

The Federal Supreme Court rejected the appellant’s requests for the hearing of witnesses and the obtaining of expert opinions. It emphasised that the supplementation of the facts by the Federal Supreme Court is an exception and that the primary focus is on legal review. The appellant had not demonstrated that the assessment of evidence and the establishment of facts by the lower court were obviously untenable or arbitrary. The Federal Supreme Court is bound by the facts as established by the Federal Administrative Court, provided that they are not obviously incorrect or incomplete. The appellant had not met these requirements.

4. Market manipulation and proportionality of the measures:

The Federal Supreme Court…