Law Ofﬁ ce Varul
v. Criminal Punishment:
The Case of Public v. Private (But without Enforcement)
In an analysis conducted by the Estonian Ministry of Justice, a clear conclusion was drawn that both the
sanctions laid down by the Securities Market Act*1 (SMA) for misdemeanours in the ﬁ nancial sector and
also the case law on sanctioning left Estonia in the bottom tier amongst EU member states with respect to
the punishments prescribed and also to actual case law on punishment. Fines imposed by Estonian courts
on juridical persons are rather small; one can ﬁ ne a company for a misdemeanour in the ﬁ nancial sector to
a maximum of only 32,000 EUR.*2 Although this is not stated by the author of the analysis, Estonia—at least
where punishments are concerned—could be regarded as a safe harbour for ﬁ nancial crime if compared to
other Member States. Such a tendency puts much pressure on the shoulders of the regulator—introduction
of larger punishments and/or broader wording of offences in the law may follow as political pressure out-
strips dogmatic considerations.
The stipulations regarding investment fraud in §211 of the Penal Code*3 (PC) are aimed at giving incen-
tive to issuers not to proffer false information during offer of securities—i.e., addressing the ‘promoter’s
problem’ (the risk that corporate issuers sell bad securities to the public).*4 Prospectus liability (in its widest
sense, including also grey capital markets*5) and disclosure requirements (either during initial offering or in
post-listing) are aimed at solving the same problem.
The broad, whether either intentionally or unintentionally, wording of §211 compels one to ask whether
the legislator has gone too far in nourishing public enforcement through the means of criminal liability
instead of letting market participants resolve possible issues through private litigation (i.e., via private
enforcement). The present article concentrates on answering this question by ﬁ rst giving an overview of
the theoretical discussion in the literature regarding the use of public enforcement instead of market par-
ticipants’ regulation of the market through private litigation, then comparing prerequisites for liability
1 Väärtpaberituru seadus. – RT I 2001, 89, 532; RT I, 28.6.2012, 5 (in Estonian). English text available via http://www.legal-
2 A. Ahven. Finantsalaste rikkumiste eest kohaldatavad sanktsioonid Euroopa Liidu riikides (Sanctions Imposed for Financial
Misdemeanours in EU Member States). Tallinn 2011 (in Estonian, not publicly distributed).
3 Karistusseadustik. – RT I 2001, 61, 364; RT I, 4.4.2012, 3 (in Estonian). English text available via http://www.legaltext.ee/.
4 R. La Porta, F. López de Silanes, A. Schleifer. What works in securities laws? – Journal of Finance 2006 (61), p. 2. Available
at http://www.afajof.org/afa/forthcoming/laporta.pdf; D. Schiele. Über den Haftungsfreiraum bei prognostischer Publizität
am Kapitalmarkt. Baden-Baden 2011, pp. 28–34.
5 See Subsection 3.2 for deﬁ nition of the concept.
JURIDICA INTERNATIONAL XIX/2012