Dr. Camilla De Vita

The administrative confiscation of the entire “product” of the insider trading offence and the “assets used” to commit it, instead of only the “profit” derived from such offence, is constitutionally unlawful. This conclusion was reached by the Constitutional Court in judgment No. 112 delivered on 10 May 2019 (judge-rapporteur: Francesco Viganò), noting that these particular forms of confiscation, combined with the very high financial penalties provided for in the Consolidated Law on Finance, lead to punitive results that are contrary to the principle of the necessary proportionality of penalties, a principle which the Court has applied, on many occasions, to administrative penalties of a substantially “punitive” nature (according to the criteria applied in Engel v. Netherlands).

The judgment clarifies that the “product” of an offence like insider trading – consisting in the sale and purchase of financial instruments by persons who possess information that is still confidential, the subsequent disclosure of which to the public could result in a change in the price of those securities – can only be represented by the actual securities purchased, or the entire sum obtained from their sale. The “profit“, on the other hand, consists of the economic benefit gained from the execution of the transaction. As for the “assets used” to commit the market abuse offence, these can only consist in the sums of money invested in the transaction, or in the financial instruments sold by the offender.

The Court, highlighting the merely “restorative” nature of the confiscation of “profit“, which as such represents the natural and legitimate reaction of the legal system to the unjust enrichment obtained by the offender, held, instead, that the confiscation of the “product” of the offence and the “assets used” to commit the offence, have a fundamentally “punitive” nature.

Therefore, the Court declared the constitutional illegitimacy of Article 187-sexies of Legislative Decree No. 58 of 1998, both in the version originally introduced by Law No. 62 of 2005 and in the version resulting from the amendments made by Legislative Decree No. 107 of 2018, in that part which provides for the compulsory confiscation, directly or by equivalence, of the entire “product” of the offence and the “assets used” to commit it. The other financial penalties and the confiscation of the “profit” derived from the commission of the offence continue to apply.