The Swiss Federal Supreme Court rendered its first decision concerning the public advertisement of investment schemes pursuant to the Swiss Collective Investment Schemes Act (CISA) on February 10 2011 (decision 2C 89/2010). Pursuant to the CISA, every person publicly offering or distributing shares in a collective investment scheme requires permission by the Swiss Financial Market Supervisory Authority (Finma).
The decision was rendered in context with the investigation of Finma against the late Swiss financier Ambros Baumann and his group. He was accused of maintaining a Ponzi scheme. In 2008, Finma ordered the liquidation of the Baumann-Group by way of bankruptcy proceedings due to infringements of the Swiss Banking Act (SBA).
Between 2000 and 2007, more than 600 persons invested over SFr100 million ($110 million), but only assets in the amount of SFr6.5 million were found in the course of the bankruptcy proceedings. Because of the similarities to the case of Bernard Madoff, Ambros Baumann was given the nickname Mini-Madoff by the press.
As a result of its investigation, Finma decided that not only Ambros Baumann but also two of his brokers infringed the CISA by publicly advertising collective investment schemes without permission (in addition to infringements of the SBA for other reasons). One of the concerned persons appealed against this decision to the Swiss Federal Administration Court and, subsequently, to the Swiss Federal Supreme Court.
While the Swiss Federal Supreme Court agreed with Finma that the broker breached provisions of the SBA, the applicability of the CISA was denied. The question at issue was whether the broker publicly offered or distributed shares of a collective investment scheme.
Pursuant to the CISA, an advertisement is public if it is directed at the public at large. Not public is an advertisement which is directed exclusively at qualified investors such as, among others, banks, insurance companies or investment funds. In 2008, Finma published a circular (Finma-Circ. 08/8 of November 20 2008) defining any advertisement as public that is not exclusively directed at qualified investors.
In the case at issue, it was given that 14 persons, mostly relatives and acquaintances of the broker, but also one company and two unrelated persons, invested money in the Baumann-Group after being contacted by the broker. It was further given that the broker met representatives of the aforementioned company and the two unrelated persons merely coincidentally. Nevertheless, based on the above mentioned practice, Finma accused the broker of infringing the CISA.
In his appeal, the broker argued that the interpretation of Finma of the term "public" was not correct. The Swiss Federal Supreme Court agreed with the broker and held that the interpretation of Finma was not covered by the relevant provisions of the CISA. It came to the conclusion that an offer or an advertisement, respectively, is not public in the sense of the CISA if it is directed at a (qualitatively or quantitatively) limited group of persons.
The ruling of the Swiss Federal Supreme Court results in the maintenance of the regime as it was under the previous act regarding investment schemes, whereby the question whether an advertisement is public must be answered by taking into consideration all relevant aspects of each specific case.