The development and rapidity of business life make it essential to control and penalize some economic activities that distort markets. As a result, financial crimes are regulated and distinguished from traditional crimes in that they may affect large groups of people, if not the entire society. As a type of financial crime, capital market crimes are regulated under articles 106-113 of Capital Market Law no. 6362, and our article will focus on “securities fraud” that is described in article 107 of the same law.
Necessity for Regulating Securities Fraud
The purpose of Capital Market Law no. 6362 is specified in article 1 as follows: “The purpose of this Law is to regulate and supervise capital markets to ensure the functioning and development of capital markets in a secure, transparent, efficient, stable, fair and competitive environment and to protect the rights and interests of investors.” Although there is disagreement about the legal scope of securities fraud under discussion here, the dominant opinion in the doctrine, which is also consistent with the purpose of Law no. 6362, is that this crime must be prevented “to prevent damage to the national economy and investors and, thus, to maintain trust in commercial life.”
Securities Fraud and Its Relevance to Article 157 of the Turkish Penal Code
Before focusing on the crime previously defined as “manipulation” in the repealed Capital Market Law no. 2499 and now as “securities fraud” in Law no. 6362, we must first explain that this crime is not a type of “fraud” set forth in article 157 of Turkish Penal Code no. 5237. The reason is that in the crime of fraud, a natural person is deceived whereas it is the public who is deceived in the crime of capital market fraud, which constitutes a significant difference between the two types of crime.
Securities fraud is regulated in article 107 of Law no. 6263 as follows:
“(1) Those who make purchases and sales, give orders, cancel orders, change orders or realise account activities with the purpose of creating a wrong or deceptive impression on the prices of capital market instruments, their price changes, their supplies and demands, shall be sentenced to imprisonment from three years up to five years and be punished with a judicial fine from five thousand days up to ten thousand days. However, the amount of the judicial fine to be imposed due to this crime cannot be less than the benefit obtained by committing the crime. (2) Those who give false, wrong or deceptive information, tell rumors, give notices, make comments or prepare reports or distribute them and, thus, obtain benefits in order to affect the prices of capital market instruments, their values or the decisions of investors, shall be sentenced to imprisonment from three years up to five years and be punished with a judicial fine up to five thousand days.”
Each of these paragraphs refers to a different type of securities fraud. The first paragraph describes transaction-based securities fraud whereas the second paragraph specifies information-based securities fraud. Since these offenses differ in monetary and non-monetary aspects, they will be discussed individually.
Transaction-Based Securities Fraud
Transaction-based securities fraud is stipulated in the first paragraph of the article; accordingly, putting capital market instruments at risk of loss through the actions listed in the article suffices to constitute a crime. Thus, the crime does not have to damage the functioning of the market or cause the financial loss of the investor with the listed actions. This market abuse may result in loss or benefit for any reason. Regardless of the action’s result, the crucial element in determining whether a crime has been committed is that the perpetrator attempts to manipulate the market with the listed actions. This crime can be committed by any natural person. If it is committed as part of a legal entity’s activities or in favor of that legal entity, natural persons that are the representatives, proxies or employees of the legal entity will be held accountable for the crime. Since the legal benefit obtained by preventing this crime is the protection of the national economy, the victims of the crime are society in general and natural persons directly harmed by the crime in particular. The commission of one of the actions listed in the article is sufficient to constitute a crime, thus making it a conduct crime. The relevant actions may take many forms, commonly including wash sale, warehousing of shares or stock parking, market-on-close, accumulation, and front running. Since the Law stipulates that transaction-based securities fraud has the specific intent of “creating a wrong or deceptive impression”, this crime can only be committed with direct intent.
Information-Based Securities Fraud
As a crime arising from deception with regard to capital markets, information-based securities fraud may be simply characterized as making transactions to affect prices and prevent the correct information from being reflected on the price. Article 107/2 of Law no. 6362 defines the perpetrators as “those who give false, wrong or deceptive information, tell rumors, give notices, make comments or prepare reports or distribute them and, thus, obtain benefits.“ Our explanations regarding the perpetrator and the victim of crime in transaction-based securities fraud also apply to information-based securities fraud. The Law lists a set of actions for the commission of information-based securities fraud, and the crime is deemed to be committed only through those actions. Since the type of crime remains the same even if several of those actions are committed simultaneously, a trial in that case will still concern the commission of a single crime. The non-monetary element of information-based securities fraud is that the perpetrator knowingly and intentionally tries to affect the prices of capital market instruments, their values or the decisions of investors. Due to the existence this specific intent, this crime can only be committed with direct intent.
The biggest difference between information-based securities fraud and transaction-based securities fraud is that the former’s perpetrator must “obtain benefits” with their actions. Therefore, the commission of the actions specified in the Law does not suffice to constitute a crime, and the perpetrator must obtain benefits as a result of their actions. Therefore, transaction-based securities fraud is a conduct crime whereas information-based securities fraud is a result crime that necessitates obtaining benefits through the crime. As for the special forms of the crime, if the crime can be divided into parts, attempt and forgoing are possible, and remorse specified in article 107/3 in Law no. 6362 may apply. Complicity is also possible in the crime of securities fraud. Regarding the joinder of offenses, if transaction-based and information-based securities frauds are committed simultaneously, two distinct actions will result from two separate crimes, and in that case, the conceptual aggregation stipulated in article 44 of the Turkish Penal Code will apply.
