Securities Litigation — the Statutory Grounds of the Claim
Disputes on the securities market unfold in two layers: the private-claim layer — the liability of management-body members for damage — and the market-abuse layer: manipulation, insider dealing and unlawful disclosure of inside information. The Georgian Law on the Securities Market regulates both layers precisely: the managers' liability in Article 16, market manipulation in Article 45-1, insider information in Article 45-2, insider dealing in Article 45-3, unlawful disclosure in Article 45-4, and National Bank sanctions in Article 55-1. This page explains these norms from the perspective of building a claim.
Article 16 — Management Liability and the Private Claim
The first part of Article 16 requires members of the management body of an accountable enterprise to act in good faith, to exercise the care of an ordinarily prudent person in an equivalent position under equivalent circumstances, and to act in the belief that their decision is in the best interests of the enterprise and the holders of its securities. The second part regulates the consequence: members who supported a decision that entailed non-performance of these duties bear solidary liability for the damage caused to the enterprise. The third part creates the balance: a member may rely on the conclusions and reports of an auditor, legal adviser or other person who in the member's reasonable judgment is a professional in the relevant matter — but not where the member had, or was obliged to have, information that renders such reliance unjustifiable. And the fourth part opens the claim: a holder of the enterprise's securities has the right to bring an action against a member of the management body for breach of these duties — the direct route for protecting private interests.
Market Manipulation — Article 45-1
Article 45-1 treats as manipulation the conclusion of a transaction, the placement of an order or another act which causes, or may cause, the creation of a false or misleading signal as to the demand for, supply of, or price of securities, or the bringing or keeping of the price to an abnormal or artificial level. Manipulation likewise includes a transaction or order influencing the price where it is accompanied by the use of a false or misleading device or scheme, and the dissemination of information through the mass media that leads the market astray. From the claim's perspective the decisive element is establishing the falsity of the signal and the artificiality of the price — without this element the composition of manipulation does not arise.
Insider Information and Insider Dealing — Articles 45-2 and 45-3
Article 45-2 defines insider information: information of a precise character which has not been made public, directly or indirectly concerns one or more securities or their issuers, and which, if made public, might have a significant effect on the price. Article 45-3 treats as insider dealing the acquisition or disposal, by a person in possession of inside information, for his own or a third party's account, directly or indirectly, of the securities to which the information relates — using that information; likewise the cancellation or amendment of an order given before possession of the information, on its basis. The same article treats a recommendation or inducement given to a third party on the basis of inside knowledge as conduct connected with insider dealing. Article 45-4 regulates unlawful disclosure: the disclosure of inside information to a third party outside the framework of ordinary employment, professional or other duties.
Article 55-1 — National Bank Sanctions in Parallel
In parallel with the private dispute, administrative pressure also operates: Article 55-1 entitles the National Bank to apply sanctions against a regulated participant of the market and members of its management body where the rules of offering, the requirements of legislation, licence rules, circulation rules or reporting requirements were breached. The catalogue of sanctions is graduated: from a written warning — through special measures and instructions, monetary fines, suspension of signing authority and demands for temporary removal or dismissal, suspension of operations and demands for cancellation of control. The practical conclusion: on one and the same facts a private claim and an administrative process may proceed in parallel, and the strategy must account for both.
Frequently Asked Questions
Below we answer the most frequent questions about securities disputes.
Against whom may a damage claim be brought?
Against members of the management body — solidarily, where they supported a decision entailing non-performance of duties; the claim is brought by a holder of the securities.
May a manager rely on advisers?
Yes — reliance on the conclusions of a professional auditor or adviser does not breach good faith, provided the member had no information rendering that reliance unjustifiable.
What is insider information?
Precise, undisclosed information concerning a security or issuer which, if disclosed, would significantly affect the price.
What sanctions does the National Bank have?
Warning, special measures and instructions, monetary fines, suspension of signing authority and dismissal demands, suspension of operations and demands for cancellation of control.
How We Help on Legal.ge
On Legal.ge you can contact an experienced market-disputes lawyer who assesses the grounds of a claim within the framework of Article 16 and the Article 45 series, helps fix the evidence correctly, and represents you both in court and in National Bank proceedings. Fill in the request form on the site and get a qualified consultation on Legal.ge.