Paris Court of Appeal
Public hearing of April 1, 2003
Appeal number: 2002/18762
Published by the Documentation and Studies Department of the Court of Cassation
COURT OF APPEAL OF PARIS 1st chamber, section H JUDGMENT OF 1 APRIL 2003 (N, 14 pages) Registration number general directory:
2002/18762 2002/18856 Decision of which appeal: decision of the Commission des Opérations de Bourse dated 24/09/2002 Nature of the decision: CONTRADICTORY Decision: REJECTION OF THE APPLICANTS TO APPEAL:
– Mr. X … Y … by SCP BERNABE-CHARDIN-CHEVILLER, attorneys, 22 rue Berger – 75009 PARIS Assisted by Master O. METZNER, 100 rue de l’Université – 75007 PARIS – Mr. Z … A … by SCP MONIN, lawyer, 1 rue de la Néva – 75008 PARIS Assisted by Maître K. LEVINE, 51 avenue Montaigne – 75008 PARIS IN THE PRESENCE OF: – THE STOCK MARKET OPERATIONS COMMISSION, 39-43 quai André Citroùn – 75015 PARIS Represented at the debates by Mr. B …, with a regular mandate. COMPOSITION OF THE COURT: During the debates and deliberation, Mr. BREILLAT,
President Madame C …,
President Mr LE D …,
Advisor REGISTRAR: During the debates and delivery of the judgment, Ms PADEL,
PUBLIC MINISTRY Clerk: Mr E …,
General substitute, DEBATES: At the public hearing of February 18, 2003, JUDGMENT: Publicly pronounced on APRIL FIRST TWO THREE THREE, by Mr. BREILLAT, President, who signed the minute with Mrs. PADEL, clerk.
* * * After having, at the public hearing on February 18, 2003, heard the applicants ‘counsel, the representative of the Chairman of the Commission des Opérations de Bourse in his observations, and the Public Prosecutor’s Office, the applicants’ counsel having had the floor Lastly. * * *
JET MULTIMÉDIA is developing an activity consisting mainly of hosting Minitel and Internet servers and providing the public with Internet access. Its shares are admitted to trading on the second market of the Paris Stock Exchange.
By agreement dated Saturday, September 16, 2000, its main shareholders irrevocably committed to bring to the French operator 9 TELECOM, a subsidiary of the Italian operator TELECOM ITALIA, 2,054,225 shares representing 20.27% of the capital and 28, 34% of the voting rights of the company JET MULTIMEDIA.
On Monday, September 18, 2000, the company 9 TÉLÉCOM filed a friendly takeover bid for the 79.73% of the capital of the company JET MULTIMÉDIA distributed among the public. The price offered for the JET MULTIMEDIA share (83 euros) represented a premium of 12% compared to the last listed price (74.10 euros). The offer valued JET MULTIMEDIA at 887 million euros.
From August 14, 2000, the JET MULTIMÉDIA share had experienced sustained and constant activity: while on that date, the title was quoted at 41.8 euros, it reached 74.1 euros on September 15, 2000, an increase of 77 % within a month.
In these circumstances, the Managing Director of the Commission des Opérations de Bourse (hereinafter COB) decided, on February 15, 2001, to open an investigation into the market for the JET MULTIMÉDIA share as of June 1, 2000.
The investigation made it possible to establish that two very high-level financial executives from TELECOM ITALIA, MY .. X …, Financial Director, and MA .. Z …, head of treasury, had acquired, through a Luxembourg bank and a Swiss bank, respectively 10,000 and 6,000 JET MULTIMÉDIA titles from September 5, 2000 and until September 15, 2000, monitoring the commitment of contributions from the main shareholders .
The result of these investigations led the Director General of the COB, in application of Article 5 of Decree No. 90-263 of March 23, 1990 relating to the procedure for administrative sanctions pronounced by the COB as amended by Decree No. 2000 -721 of August 1, 2000, to ask its President, by letter of November 16, 2001, to appoint from among the members of the Commission a rapporteur responsible, after examining the file, to notify any complaints to the person (s) brought into question. cause. On December 14, 2001, the President of the Commission appointed Mr Christophe F … as rapporteur.
By letters of February 25, 2002, the COB rapporteur notified Mr X .. and Mr Z .. of the complaints relating to the use of privileged information by persons holding it in particular because of the functions they performed at the within such an issuer, on the basis of Articles 1 to 5 of COB Regulation 90-08, relating to the use of inside information.
In response to the notification of objections, Mr X .. maintained in a memorandum dated May 27, 2002 that the breaches noted were not constituted since he had not placed any order to purchase JET MULTIMÉDIA securities from his Swiss and Luxembourg accounts; that he had only been informed of the proposed public tender offer for 9 TÉLÉCOM on JET MULTIMÉDIA two or three days before the meeting of September 14, 2000, ie during the final phase of negotiations; that he did not benefit from any precise information before the date of fixing of the price, that is to say September 16, 2000; that Mr Z … had not informed him of the purchases of securities which he had made on his behalf until the day after the takeover bid and that the
Mr Z .. argued in his defense of May 3, 2002 that the information relating to the JET MULTIMEDIA operation had been public at least since mid-August 2000; that it was not sufficiently precise for it to be considered as inside information and that the proof of the fact that he would have been in possession of inside information was by no means established.
On September 12, 2002, Mr X … sent additional observations insisting, without any real novelty, on the idea that “Mr Z .. acted without the knowledge of Mr X ..” and that he would not have been informed purchases made by Mr. Z .. for his benefit only on September 19, 2000. He also underlined that the information exploited could not have been privileged since the rumor of a public offer on the shares of the company JET MULTIMÉDIA would have circulated on the market for several weeks.
On September 20, 2002, Mr Z .. sent further observations maintaining in particular that the principle of the presumption of innocence, provided for in Article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR ), would not have been respected owing to the fact that the “construction of the file” would have been made from the “postulate” according to which Mr Z … would necessarily have used inside information.
Noting that Messrs Y … X … and A … Z … had knowledge of inside information and used it in contravention of the provisions of articles 2 and 5 of COB regulation N ° 90 -08 and article L. 621-14 of the Monetary and Financial Code, the COB, by decision of September 24, 2002, pronounced against Mr X .. a financial penalty in the amount of 300,000 euros, de MZ .. a financial penalty in the amount of 150,000 euros and ordered the publication of the decision in his monthly Bulletin and in the Official Journal of the French Republic.
October 30, 2002, MX … brought an action for annulment and, in the alternative, in reformation against this decision.
On October 31, 2002, Mr Z .. brought an action for annulment and in the alternative for reformation against the decision of the COB. He also requested that the COB be ordered to pay him the sum of 5,000 euros under article 700 of the New Code of Civil Procedure and the costs. * * *
Having regard to the brief filed on November 29, 2002, in which Mr X …, applicant, maintains in support of his appeal, as a preliminary point, that the decision of the COB was not taken by an impartial formation and, as a preliminary subsidiary, on the one hand that the information relating to the takeover bid of 9 TÉLÉCOM on JET MULTIMÉDIA did not correspond, on September 5, 2000, to privileged information, on the other hand that it only became aware of it subsequently on September 5, 2002, and finally that the disputed acts were committed without his knowledge;
Having regard to the brief filed on November 29, 2002, in which Mr Z .., applicant, maintains in support of his appeal, primarily, that on the one hand the decision of the COB was taken in violation of the principle of respect for the presumption of innocence and in a partial manner as regards the burden of proof, on the other hand that the information was not inside information, and that it did not hold it, in the alternative, that the rule of proportionality of the financial penalty was not respected;
Having regard to the written observations of the COB produced on January 17, 2003 tending to dismiss the appeals;
Considering the summary report filed by Mr X … on February 10, 2003;
Considering the memory in response filed by Mr. Z .. on February 10, 2003;
Or ‘the observations of the Public Prosecutor at the hearing of February 18 tending to the rejection of the appeals; ON THIS, ON THE MEANS TENDING THE ANNULMENT OF THE PROCEDURE AND OF THE DEFERRED DECISION:
Considering that according to article 6.1 ° of the ECHR, everyone has the right to have their case heard publicly by an independent and impartial tribunal;
That these requirements apply to the sanctioning procedure provided for by Articles L. 621-14 and L.621-15 of the Monetary and Financial Code which, although administrative in nature, are intended as in criminal matters, by their amount and the publicity given to them, to punish the perpetrators of acts contrary to the general standards laid down by the regulations of the Commission and to dissuade operators from engaging in such practices;
That under the terms of article 9, paragraph 3, of the decree of March 23, 1990 relating to the procedure of injunctions and administrative sanctions pronounced by the COB, modified by the decree of August 1, 2000, the decision is taken in the only the presence of the president, members other than the rapporteur and the secretary of the Commission;
That these provisions are intended to ensure the independence and impartiality of the COB when issuing injunctions or administrative sanctions;
Considering that, invoking all of the aforementioned texts, Messrs X … and Z … denounce a breach of the strict separation between the investigating and judgment authorities by arguing that the reading of the COB decision of September 24, 2002 reveals that the Commission was satisfied to take again in extenso the report of MF … dated July 9, 2002; that they underline that if the rapporteur in charge of the investigation was certainly physically absent during the deliberation, it nevertheless appears that the COB purely and simply adopted its report by integrating it word for word in its decision of sanction, 7 of the 11 pages of the decision having been borrowed from the rapporteur to within one or two sentences or paragraphs,
But considering that no text prevents the Commission from adopting, when it considers them relevant, the reasons appearing in the rapporteur’s report;
Considering that, in the second place, Mr Z .. denounces the violation of the principle of presumption of innocence resulting from the study, even superficial, both of the investigation report on the market of the title JET MULTIMÉDIA emanating from the Head of Service of the Inspection than that of the rapporteur’s report and all the documents in the file; that it deduces from these elements that no relevant evidence having been reported against it by the COB, the Commission did not examine the procedure impartially;
But considering that contrary to what Mr. Z … maintains, the decision mentions certain exculpatory elements contained in the investigation report of the Inspectorate and in the summary report drafted by the rapporteur after contradictory investigation of the file and that Rightly, the COB sanctioning decision responds to the argument put forward by Mr Z .., according to which the breaches which the rapporteur concluded are not proven, by stating “That nevertheless Mr Z .. does not criticize any particular point of the investigation and sanction procedure of the Commission; which it only infers from the alleged absence of proof of a breach, an argument presented as arising from the procedure but which is a substantive argument “;
ON THE BACKGROUND :
Considering that in support of their appeals MM. X … and Z … argue that at the date of the start of the disputed purchases of securities, September 5, 2002, the information in question of the proposed public takeover bid was not privileged, no ‘not being sufficiently precise and having been known to the public for several weeks;
ON THE ACCURACY OF THE INFORMATION
Considering that the applicants, in order to justify the imprecise nature of the project, maintain that at the time of their acquisitions, their information on the “operable” JET MULTIMEDIA title was cut off from an essential element, namely the price of the offer insofar as, until at least September 14, the initiator of the public offer, the company 9 TÉLÉCOM, had not yet set the range of its price offer and had no certainty of acceptance by the seller, the company JET MULTIMÉDIA, of such an offer;
Considering, however, that the notion of precision implies a public offer project sufficiently defined between the parties to have reasonable chances of success, regardless of the existence of risks inherent in any operation of this nature as to the effective completion of this project and without necessarily having fixed a price;
Considering, therefore, that it is appropriate to seek in this case, if at the time of the disputed purchases, potential buyers of the target company had already engaged in negotiations with the company JET MULTIMÉDIA and precisely defined their project;
That on this point, the decision of the COB was able to point out, in view of the documents produced,
“That certainly, Mr. G. said:” until September 16, 2000, the outcome of the negotiations was extremely uncertain, many disputes having existed until the end …. I want to say that until September 16 in the morning, no one could have bet a lira on the success of these negotiations “; let it be true that from the beginning of September we were in the final phase of the operation, that of negotiations” ;
“Indeed, as MX … notes on page 3 of his brief, it was” on June 22, 2000 that the first JET MULTIMEDIA evaluation memorandum was issued, based on external information “; that according to Mrs. H …, hierarchical superior of MG .. at the head of the corporate development direction, the exclusive negotiation letter of TELECOM ITALIA with the management and the main shareholders of JET MULTIMEDIA was signed “between the end of July and early August “;
“That according to a table of” meetings and conference calls “, drawn up by LEHMAN BROTHERS, adviser to TELECOM ITALIA and its subsidiary 9 TELECOM with SOCIÉTÉ GÉNÉRALE, an” evaluation analysis “meeting took place in the TELECOM ITALIA premises on July 27 and 28, 2000; that a “telephone discussion on the evaluation” took place on July 31 in the presence of TELECOM ITALIA employees; that “a presentation of a first evaluation took place on July 22 August “;
“That still according to Mrs. H …,” the evaluation was made during the weeks which preceded the negotiation of the price (last week of August and first week of September) “, even if it was not” established “that at the meeting of the week of September 11”;
“That according to another table by LEHMAN BROTHERS,” the preparation and negotiation of the offer documentation (contracts, commitments to tender, draft information note, letters of deposit) “also took place” at the beginning of September “;
“That at the time of the meeting of September 5, in which took part MI …, collaborator of Mr X …, as expressly indicated in the table drawn up by the SOCIÉTÉ GÉNÉRALE specifying that its object was the” presentation of the operation envisaged “, according to Ms. H …” we were towards the end of the project, “the final phase of the JET MULTIMEDIA project having started between the end of August and the first week of September”;
“That in summary, MG …, main negotiator of the agreement identified the period of the” 1st contact “(May 2000); that of the” talks “of June 27 (date on which a meeting between managers of the JET MULTIMEDIA companies) and TELECOM ITALIA took place to “discuss the logic of a public offer)” on August 31; that of the “negotiations strictly speaking” … “from the beginning of September” and, without our realizing their differences with the previous ones, those of “negotiations in the strict sense”, “from September 12 to 16”;
“That consequently, if the price of the transaction was not fixed from September 5, 2000, the company TELECOM ITALIA had the elements necessary for the final negotiation and envisaged the success of the operation to the point of having made prepare useful documentation “; That under these conditions, and contrary to what the applicants assert, the negotiations in progress were no longer at the time in dispute at a stage still too embryonic not to give rise to precise information;
ON THE PUBLIC NATURE OF THE INFORMATION OR NOT
Considering that the applicants, to prevent the qualification of privileged information of the information in question, claim that there existed during the incriminated period precise rumors, concordant, evoking a forthcoming takeover on the company JET MULTIMÉDIA; that they invoke in this regard on the one hand, several testimonies from the press or from investors, on the other hand, “the constant and sustained activity” of the JET MULTIMÉDIA title from August 14, 2000, the average price being between on August 15, 2000 and September 15, 2000 increased from 44.3 euros to 74.5 euros in increasing volumes;
Considering, however, as the COB emphasizes and as recalled above, the information is only privileged because it relates to a project sufficiently defined to give chances of leading to an operation between a buyer and a seller; That in this case, it is demonstrated in the press clippings or statements communicated that the public was not informed on these points and in particular on the identity of the purchaser, the company 9 TELECOM since in particular “either the recommendations to the purchase invoked did not refer to a subsequent public offer – this is the case of the recommendations referred to in the statement of AGF Asset Management to the inspection service of C.
That under these conditions, it cannot be deduced from the rumors which circulated in the public from August 2000, that this public was aware of a sufficiently precise takeover project on the company JET MULTIMÉDIA, emanating more particularly from the company 9 TELECOM and which could have an impact on the price of the security;
That it cannot be deduced either, as MZ … mistakenly suggests from the relevant analysis of the share prices from August 17, 2000, by certain financial analysts consisting in anticipating the takeover bid, the existence public information; that moreover and in a superabundant manner, the applicants seek in vain and paradoxically to demonstrate that the information of which they are aware, if it is insufficiently vague and imprecise for informed investors, would nonetheless be very precise at the stage of the public rumor;
That consequently, the disputed information relating to the offer on the company JET MULTIMÉDIA meeting the criteria of precision and non-publicity must be qualified as privileged information;
ON THE HOLDING OF INFORMATION FOR MX ..
Considering that Mr X … claims to have been informed of the draft takeover bid that two or three days before the negotiation of September 14, 2000 during which the price range for negotiation was discussed; that it is opposed to the contrary conclusion of the COB based on the declarations of Mrs. H… and of MI…, on the importance of the operation JET MULTIMÉDIA and the strategic character of the post occupied by MX. within TELECOM ITALIA; that he raise the following arguments:
– it emerges from the file established by the inspection services of the COB that the public tender offer launched through the company 9 TÉLÉCOM was of secondary importance for TÉLÉCOM ITALIA, which is why, despite his position as Financial Director, he was only kept informed of the JET MULTIMEDIA operation during the final phase of negotiations, around September 11, 2000, the operation having been negotiated and implemented within the company TELECOM ITALIA, by the team of the decision “Corporate Development” at the head of which was Mrs. Giulia H … and Mr. Francesco G …;
– the table of meetings drawn up by the consulting banks LEHMAN BROTHERS and SOCIÉTÉ GÉNÉRALE shows that he did not participate in the meeting of September 5, 2000 but that of September 14, the subject of which is worded as follows: “presentation of the operation to Mr. X …;
Considering however, as underlined by the COB, that part of the purchases of MX … is prior to the date on which he himself acknowledges having been informed of the transaction, that is to say “a few days before the September 14, 2000 meeting “; that in fact it acquired 3,000 shares between 12 and 15 September 2000; that as the decision of the COB notes, it is not because the company TELECOM ITALIA has, during the year 2000, carried out some acquisitions operations more important than that of the case, that the director company is not necessarily informed of the existence of advanced negotiations concerning a transaction the cost of which is
That it results from the documents communicated and in particular from the declarations of Mrs. H …, that MI …, in charge of the acquisition file “informed as soon as possible Mr. J … and / or Mr. X …, matters he was dealing with “;
at least from September 5, 2000, especially since the assumptions of the business plan were discussed by the advisory banks from August 23, as mentioned in a table drawn up by SOCIÉTÉ GÉNÉRALE and Mr I. .. himself indicated that his analyzes included in particular the “verification of the main assumptions of the business plan formed by the councils”; ON THE HOLDING OF JET MULTIMEDIA INFORMATION
Considering that Mr Z .., treasurer of the company JET MULTIMÉDIA, denies on the one hand having received any privileged information from his director within the company, Mr X .., on the other hand the relevance of the argument of the COB based on the fact that Italian nationals and bankers bought JET MULTIMEDIA titles during the period in question and the telephone calls which he was able to make to his account manager, MK ..;
Considering however, that the Court following the example of the COB raises a bundle of concordant indices from which it follows that only the transmission of the privileged information held by Mr X … to Mr Z … can explain the use that a made the latter for its own account:
– the reconciliation of information and its use on the market;
– the fact that the purchases of Mr Z .. began the same day when Mr X .. could be informed of a meeting relating to the state of the project;
– the fact that Mr Z .. is both a direct collaborator of Mr X .. and a friend so close that he has a power of attorney on the latter’s securities account, having precisely enabled him to carry out at the same time as for himself the disputed purchases in favor of Mr X ..;
– the lack of consistency between the rumor thesis and the fact that the Swiss and Luxembourg managers immediately bought JET MULTIMÉDIA shares after MZ .. had placed them buy orders;
– the weakness of the justification for purchases by a rumor which was neither public, nor precise, nor decisive. without the arguments developed by Mr. Z .. on the various roles provided within his company can for this operation have any scope;
That, moreover, the report of the COB rapporteur (ratings 5189 to 5199) states without being usefully contradicted that the disputed investment was “the first of a significant amount made by Mr. Z .. using the power of attorney granted to him Mr X .. on his account in Switzerland and even the first significant investment made by Mr Z .. on the French market “, and that” the latter had admitted in hearing not to have known the sector concerned (mark 4906) “; “that a letter from the Luxembourg Financial Sector Supervisory Commission dated August 20, 2001 indicates that the orders were transmitted on the mobile phone of a manager of the Banca Populare di Verona (call number 4809)”; and that “the course of
ON THE USE OF INFORMATION
Considering that Mr X .. claims that insofar as he did not materially intervene in the disputed purchases of which he was not informed, his responsibility cannot be engaged, even though MZ .. would have acted from his accounts, using in particular the power of attorney he had issued to him;
That he argues that if telephone exchanges between Messrs Z … and K … were noted during the investigation, proof of no correspondence either written or oral between Mr X … and the managers of its Swiss and Luxembourg accounts, likely to establish the existence of purchase orders placed by the latter could not be reported; that it has also never been in relation with Messrs L … or K …, the opening of its Swiss and Luxembourg accounts having been carried out by Mr A … Z …; that Mr Z … recognizes not having informed Mr X … of the orders of purchases of titles which he had given for his account that the day after the takeover bid, that is to say after September 15, 2000;
But considering that, in order to assess whether a purchase has taken place, article 2 of regulation 90-08 of the COB makes no distinction between a purchase made directly by a person on his own behalf and that made by an “intermediary” for the account of the first; that failing this, it would be sufficient to resort to an interposition of interposed “on behalf of the first; that failing this, it would be sufficient to resort to an interposition of person so that an initiated buyer automatically releases his liability; that in addition, the principal, by virtue of his absolute duty to abstain, must ensure that no transaction is carried out on his behalf;
And considering that Mr Z .. has placed, on behalf of Mr X .., orders to buy securities which can only be explained by the fact that, as it has been observed, the latter has sent him the inside information , and this, necessarily for the purpose of drawing a personal profit within the framework of the mandate of management that the financial director of TELECOM ITALIA had entrusted to Mr. Z ..; that consequently, the exploitation of privileged information is characterized against Mr X …;
Considering moreover, that Mr Z … does not dispute having exploited the information which the Court considers privileged by buying for its own account 6 000 titles JET MULTIMÉDIA between 5 and September 8, 2000 via Luxembourg and Switzerland;
Considering that Mr X … does not invoke any complaint against the amount of the sanction pronounced, in accordance with the principle of proportionality, by relevant reasons that the court makes his own; Considering that the Commission made a fair application of this principle by fixing the amount of the pecuniary sanction pronounced against Mr X … at three hundred thousand (300,000) euros;
Considering that Mr Z .., to demonstrate the disproportionate nature of the sanction of 150,000 euros pronounced against him, indicates that concerning the securities purchased in Luxembourg, he bought 250 shares at 64.5109 euros, 750 shares at 70.1750 euros, 1,000 shares at 68.65 euros and 500 shares at 70.1750 euros, sold 2,500 shares at 81.8947 euros, and under these conditions made a capital gain of 32,234.05 euros; that concerning securities purchased in Switzerland, the realized capital gain is approximately 40,000 euros;
But considering that the shortcomings noted against the applicant are of a particular gravity insofar as he exercised functions of high responsibility in the company TELECOM ITALIA; that his purchases, like those of Mr.X, have contributed to distorting the functioning of the market by raising the price of the JET MULTIMÉDIA share to the detriment of subsequent buyers and in particular of the companies TELECOM ITALIA and its subsidiary 9 TELECOM and have harmed equal information for investors; that on the other hand MZ … has benefited from a significant gain due to the resale of titles he estimates himself to more than 72,000 euros;
That it follows from all of these circumstances that the Commission made a fair application of the principle of proportionality by setting the amount of the financial penalty against Mr Z … at one hundred and fifty thousand (150,000) euros.