Commentary on Article 224. Violation by the Issuer of the Procedure for the Issuance of Issue Securities of the Criminal Code of the Republic of Kazakhstan
1. Entering knowingly false information into the prospectus for the issuance of issue securities, as well as preparing a knowingly false report on the results of the placement of issue securities, if these acts caused major damage, —
shall be punishable by a fine in an amount of up to one thousand monthly calculation indices, or corrective labor in the same amount, or engagement in community service for a period of up to eight hundred hours, or restriction of liberty for a period of up to three years, or deprivation of liberty for the same period.
The public danger of the act is обусловлена by entering knowingly false information into the prospectus for the issuance of issue securities, as well as preparing a knowingly false report on the results of the placement of issue securities.
The object of the crime is the established procedure for the issuance of issue securities and the interests of investors who are holders of securities.
In accordance with subparagraph 101) of Article 1 of the Law of the Republic of Kazakhstan dated July 2, 2003, “On the Securities Market,” the issuance of issue securities means actions of the issuer aimed at the emergence of issue securities as an object of civil rights, or a set of certain securities, the placement, circulation and redemption of which are carried out in accordance with the prospectus for the issuance of such issue securities. The issuance of issue securities is carried out by issuers authorized to do so (an underwriter or an issuance consortium).
In accordance with paragraph 1 of Article 129 of the Civil Code, a security means a set of certain records and other designations certifying property rights.
Securities include shares, bonds and other types of securities determined in accordance with the Civil Code and other legislative acts of the Republic of Kazakhstan.
By their form of issuance, all securities are divided into documentary and non-documentary; issue and non-issue; registered, bearer and order securities (paragraphs 2 and 3 of Article 129 of the Civil Code).
According to the content of Article 224 of the Criminal Code, only issue securities are referred to, which means securities having homogeneous characteristics and details within a single issue, placed and circulated on the basis of uniform terms applicable to that issue.
Issue securities are defined in a similar manner in subparagraph 96) of Article 1 of the Law of the Republic of Kazakhstan “On the Securities Market.”
In accordance with Article 4 of the said Law, the objects of the securities market in the Republic of Kazakhstan are:
“1) non-government issue securities of organizations that are residents of the Republic of Kazakhstan, the issuance of which has been registered by the authorized body in accordance with the procedure established by this Law and other legislation of the Republic of Kazakhstan;
- non-government issue securities of organizations that are non-residents of the Republic of Kazakhstan, the issuance of which has been registered by the authorized body or which have been admitted to circulation on the organized securities market of the Republic of Kazakhstan;
- non-government issue securities of organizations that are residents of the Republic of Kazakhstan, the issuance of which has been registered in accordance with the legislation of a foreign state and which have been admitted to circulation on the organized securities market of the Republic of Kazakhstan in accordance with the procedure established by the regulatory legal act of the authorized body;
- issue securities of international financial organizations, the issuance of which has been registered by the authorized body or which have been admitted to circulation on the organized securities market of the Republic of Kazakhstan in accordance with the procedure established by the regulatory legal act of the authorized body;
- government issue securities;
5-1) foreign government issue securities;
- derivative securities and other financial instruments.”
The subject matter of the crime is the prospectus for the issuance of issue securities or the report on the results of the placement of issue securities.
From the objective side, a violation by the issuer of the procedure for the issuance of issue securities consists in committing at least one of the following acts: 1) entering knowingly false information into the prospectus for the issuance of issue securities; 2) preparing a knowingly false report on the results of the placement of issue securities; 3) causing major damage through these acts.
False information means information that does not correspond to actual reality. Such information may include the insertion into the prospectus for the issuance of issue securities of false data concerning the financial position of the issuer, its authorized capital, the procedure for payment of income on issue securities, the methodology for determining the amount of income, etc.
The Law of the Republic of Kazakhstan “On the Securities Market” establishes the obligation of a joint-stock company to submit to the authorized body a report on the results of the placement of shares of the joint-stock company following each reporting period of share placement, until the shares of the joint-stock company have been fully placed, within forty-five calendar days after the date of completion of the reporting period for the placement of shares of the joint-stock company or after the date of their full placement (paragraph 1 of Article 24).
Entering knowingly false information into the prospectus for the issuance of securities means including in this document, at the stage of its preparation, information that does not correspond to actual reality. The criminal law does not specify exactly which information (all or part thereof) contained in the issuance prospectus or report must be knowingly false. Consequently, the distortion of the actual situation may concern any information contained in the issuance prospectus.
The authorized body has the right to refuse to approve the report on the results of the placement of issue securities if, during the review of the documents, facts of their non-compliance with the requirements established by the legislation of the Republic of Kazakhstan are identified.
In accordance with paragraph 1 of Article 25 of the Law of the Republic of Kazakhstan “On the Securities Market,” the authorized body also has the right to adopt a decision to suspend the placement of issue securities in the following cases:
- failure by the issuer to submit a report on the results of the placement of shares of a joint-stock company;
- if, during the review of the report on the results of the placement of issue securities, a discrepancy is identified between the information specified in the report and the documents submitted for state registration of the issuance of issue securities;
- violation of the terms and conditions of the issuance, placement and redemption of issue securities;
- the existence of facts of untimely performance or non-performance of obligations to pay remuneration or redeem previously issued bonds.
The decision to suspend the placement of issue securities is sent by the authorized body to the issuer and the central depository.
The central depository is obliged to suspend the registration of transactions involving the placement of issue securities from the moment it receives the decision of the authorized body to suspend the placement of these securities (paragraph 2 of Article 25 of the Law).
The resumption of the placement of issue securities is carried out after the identified violations have been eliminated, on the basis of written notification from the authorized body.
By its structure, the composition of the crime is material. The crime shall be considered completed provided that it has caused major damage. In accordance with subparagraph 38) of Article 3 of the Criminal Code, major damage means damage caused to an individual in an amount exceeding two hundred times the monthly calculation index, or damage caused to an organization or the state in an amount exceeding two thousand times the monthly calculation index.
From the subjective side, the crime is committed intentionally. The perpetrator is aware that they are approving a prospectus for the issuance of issue securities containing knowingly false information, or approving a knowingly false report on the issuance of issue securities, foresees the possibility or inevitability of consequences being caused to the holder of the security as a result of such actions, and desires their occurrence or, although not desiring them, consciously allows such consequences to occur or treats them with indifference.
The purpose and motive of the act do not affect its legal classification.
The subjects of this crime may be officials of the management bodies of the issuer who approved the prospectus for the issuance of issue securities or made a decision to approve a knowingly false report on the issuance of issue securities.
An issuer is a person carrying out the issuance of issue securities (subparagraph 104) of Article 1 of the Law of the Republic of Kazakhstan “On the Securities Market”).
The act provided for in Article 224 of the Criminal Code belongs to the category of crimes of medium gravity.
Commentary of 2021 on the Criminal Code of the Republic of Kazakhstan by Isidor Shamilovich Borchashvili, Honored Figure of Kazakhstan, Doctor of Law, Professor, Academician of the Kazakhstan National Academy of Natural Sciences, member of the Scientific Advisory Councils under the Constitutional Council of the Republic of Kazakhstan and the Supreme Court of the Republic of Kazakhstan, member of the working group on the reform of the law enforcement system under the Security Council of the Republic of Kazakhstan, Honored Employee of the Ministry of Internal Affairs of the Republic of Kazakhstan.
Constitution Law Code Regulatory Act Decree Order Decision Resolution Advocate Almaty Lawyer Legal service Legal Consultation Civil Criminal Administrative cases and disputes Defense Arbitration Legal Company of Kazakhstan Law Office Court Cases Declaration Decree Order Resolution Decision Report Conclusion Application Conclusion Convention Contract Memorandum Methodology Rules Note Regulations Program Charter Charter Article Commentary Resolution Regulations Protocol Draft Program Regulations Messages
