By Michael O'Boyle and Christine Murray
For years, accused violators of securities and banking laws in Mexico could hide behind lengthy appeals, during which regulators were barred from commenting on charges and investors were left in the dark about crimes such as insider trading.
But in a little noticed decision in February, the Supreme Court backed new powers given to the banking and securities regulator CNBV in 2014 to name violators.
In the first case of its kind to reach the highest court, justices threw out a bid by the former chief executive of Mexican builder ICA to quash news of a 2016 reprimand for failing to alert investors to key information early enough.
The ruling gives the CNBV an edge in ongoing legal battles with companies and executives who are using injunctions to keep sanctions under wraps, said Pedro Torres, a legal expert at university Tec de Monterrey.
"It is an achievement of the authorities that sets a precedent for transparency in the securities markets," Torres said. "The rule is clear: people will realize that if they go to court with similar schemes, they are going to lose."
Mexico has lagged other major Latin American economies such as Brazil, Chile, Colombia and Peru in fighting corruption and improving market transparency, said Will Landers, a managing director at BlackRock Inc in Princeton, New Jersey.
"Improvements are needed for Mexico to catch up to other Latin American markets and increase investor confidence," he said. "Any move to get rid of favoritism and provide more certainty to investors will be welcomed by markets."
ICA's former head was one of at least 13 executives and companies that filed similar gag orders, arguing the new law violated their rights, according to officials, court documents and the CNBV's database. The regulator lost five of those motions in lower courts but overturned eight of them.
Previously regulators were barred from publishing or even commenting on sanctions until all legal options had been exhausted, a process that can take years.
In response to questions from Reuters, the CNBV said in a statement that the Supreme Court's ruling set a general precedent that ratified the watchdog's power to publish sanctions related to both securities and banking laws violations.
The repercussions can go beyond mere embarrassment. In March, for example, when the chief financial officer of conglomerate Alfa resigned, the company cited a CNBV fine for insider trading.
TEST OF LEGAL FRAMEWORK
For a time, ICA was the country's largest construction company, helping build the Mexico City subway and more than 15 airports. But a drop in the value of the peso in late 2014 and fewer government projects left it struggling to pay dollar-denominated debt.
ICA's stock price collapsed in 2015 and it was forced to delist from in 2016 before eventually filing for bankruptcy last August.
ICA's former CEO, Alonso Quintana, was reprimanded by the CNBV in 2016 for failing to inform investors that ICA's stock was in danger of being kicked off the NYSE, according to court documents.
The company also received a fine on the same day of nearly 2.2 million pesos ($117,000) for failing to disclose information, the CNBV's public database showed, though it was not clear if it was for the same violation.
ICA had not paid the fine as of early May, according to the CNBV database.
The company said in a statement that it was still appealing the fine, declining to answer further questions from Reuters. Quintana, who resigned as CEO in February 2016, declined to comment for this story.
Quintana fought in court for two years to block the CNBV from disclosing his reprimand. Like other executives and companies who filed gag orders, he argued that allowing the regulator to publish sanctions could unfairly affect their reputations as they fought to overturn charges in court.
However, the Supreme Court ruled that the CNBV has a constitutional right to publish limited data on sanctions, even as appeals proceed, and that the public's right to know outweighs potential damages to a litigant's reputation.
Mauricio Basila, a former top CNBV official now in private law practice, said the case showed Mexico's elite, who closely control many of the country's publicly listed companies, feared the "stain" on their reputation, whether there was a fine or not.
"It is very important that these cases are seen, because they put our legal framework to the test," he said.
($1 = 18.8040 Mexican pesos)
(Reporting by Michael O'Boyle and Christine Murray, Additional reporting by Rodrigo Campos in New York, Editing by Rosalba O'Brien)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)