Summary
Insider trading in France is a felony giving rise to 2 possible actions, one at the Financial Markets watchdog agency level (AMF), the other in court. Case law is scarce but precedents exist. The outcome of the AMF action will not mean the end of the criminal investigation phase, and has no direct bearing on the eventual outcome of a court case.
Analysis
The unexpected delays affecting the production of Airbus’s A380 were known to some within EADS, Airbus’s parent, and AMF (SEC’s French counterpart) opened an enquiry after noticing some unusual sales of EADS’s shares. Several Directors and shareholders were questioned. AMF ended its enquiry by communicating its findings of fact to a DA, thus acknowledging that some insider trading actually occurred. A criminal investigation, based on the provisions in the Monetary and Financial Code sanctioning insider trading was formally initiated in Paris, overseen by an investigating magistrate, and will last several years, as is the norm in similar cases. Only the twenty-some indicted parties have access to the magistrate’s file, so only speculations on its contents appeared in the press. Since determining insider trading, i.e. who did sell (or tell) what, when, with what intent, is not so easy, the magistrate will concentrate her efforts on low-hanging fruits. The sentences for the persons being ultimately found guilty range from substantial fines to 2-year jail terms (in addition to the fines). However, independent from the ongoing criminal investigation, AMF has also the power pursuant to its General Rules to inflict fines and a committee will determine them by this year’s end. Lagardère and Daimler, as I had anticipated, will apparently not be charged, even though charging corporate entities is possible in france, in addition to individuals. Is this the end of the story? Technically, AMF’s fines are not a yardstick for the magistrate to prioritize her investigation, and in theory she could go beyond the culprits who will be fined by AMF, but this is very unlikely. Historically, only one person ever served term in France (one year) after being sentenced for insider trading, and that was in 1994 for the Pechiney-Triangle scandal dating back to1988. All other reported cases involve suspended jail terms and fines, some very heavy. Time will tell in this instance, stay tuned.
Louis Buchman consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
