Market manipulation conduct

On April 4, 2006, the Argentine Securities Commission (“CNV”) issued Resolution No 15,368, which sanctions Pellegrini S.A.S.G.F.C.I., the managing company of an investment fund (the “Company”), for conduct considered “market manipulation”.

In April 2004, the CNV began an investigation on the Company and the Company’s Board of Directors at the time when the investigated facts occurred, because of transactions performed with CEDEARS between October 2002 and January 2003, in violation of the market transparency rules. The characteristics of the transactions that caused the CNV’s investigation were the following:

(i)     the nominal value of the transactions was similar;

(ii)     the same intermediary participated in most of the trades, and the transactions were performed almost at the closing of the day; 

(iii)    the operated prices were higher than the closing prices of the underlying securities in the foreign markets; and

(iv)   when other agents traded, the prices at which the transactions were entered immediately afterwards by the investigated intermediary were higher.

The CNV considered that the transactions performed by the Company with certain CEDEARS, violated the rules of transparency in the public offer, because they affected the formation of prices and the volumes negotiated, and created a false appearance of the existence of offer and demand in such species.

The CNV imposed on the Company and its Directors at the time of the events, the sanction of warning, the least stringent provided by the rules in force, based on the following mitigating circumstances:

(i)      the transactions were not aimed at defrauding the quotaholders, as no monetary damage was caused, and no damaged party filed a claim before the CNV on such matter;

(ii)     the transactions were for small amounts, in a small market, the Company being the only participant; and 

(iii)    the Company did not register prior sanctions for violations to the rules of transparency in the public offer.

On the other hand, the Supervisory Committee’s members received a notice that in the future they must reinforce controls, so that the corporate bodies comply with the rules in force.