PREDICTABILITY OF CRIMINAL RULES AND INSIDER TRADING
LexInter | March 30, 2008 | 0 Comments

PREDICTABILITY OF CRIMINAL RULES AND INSIDER TRADING

THE COURT OF CASSATION, COMMERCIAL CHAMBER, issued the following judgment: On the single plea:

Whereas, according to the judgment under appeal (Paris, 10 December 2008), following the losses suffered by Cyberdeck, the directors of the latter considered proceeding with a capital increase reserved for the company Casalva Germany GmbH (the company Casalva), of which Mr X … was the manager and the sole partner; that the operation, prepared during the summer of 2005, was made public by a press release dated October 13, 2005 and approved by the extraordinary general meeting of Cyberdeck on November 21, 2005; that following an investigation ordered by the Secretary General of the Autorité des marchés financiers (AMF) on the securities market of Cyberdeck, Mr X .. s’ shares of this company on behalf of Casalva, even though he held inside information relating to the preparation of the capital increase reserved for the latter and to be carried out for a price more than two and a half times lower than the current stock market price, these sales having made it possible to realize a capital gain of 375,161 euros; that by decision of December 6, 2007, the commission of the sanctions of the AMF pronounced against Mr X … a pecuniary sanction of 1 200 000 euros and ordered the publication of the decision;

Whereas Mr X … criticizes the judgment for having rejected his appeal against this decision, then, according to the means:

1 ° / that the use of inside information justified by an interest does not constitute an insider’s breach other than personal; that such is the case when the sale of the securities of a company makes it possible to raise without delay the funds necessary for an operation of increase of the capital intended to ensure the sustainability of this company; in the present case, Mr X .. maintained that the company Casalva had proceeded to the sale of the securities of the Cyberdeck transfer only in order to obtain the funds necessary for the financing of a possible increase in capital, which had indeed occurred ; that by affirming that Mr X … had committed an insider breach in that, necessarily informed of the existence and the main characteristics of the planned capital increase of the company Cyberdeck, he had sold shares s of it before the transaction is made public, that this transfer had indirectly benefited him, since she had allowed the Casalva company, of which he was the sole Action nary, realize a profit and that the simple chronological reconciliation between the possession of information and its use, except for an overriding reason not established in the present case, characterized the breach of insider, without at any time seeking, as it was however expressly invited to do so, whether the transfer of securities Cyberdeck was not justified by an interest other than personal, namely by the need to immediately raise the funds necessary for a capital increase operation likely to ensure the sustainability of this company, the court of appeal deprived its decision of legal basis with regard to articles 621-1, 622-1 and 622-2 of the AMF general regulations;

2 ° / that the amount of the sanction pronounced by the sanctions commission of the AMF must be fixed according to the seriousness of the breaches committed and in relation to the advantages or profits possibly drawn from these breaches by the person in question; in the present case, to maintain the sanction of 1,200,000 euros pronounced against Mr X …, the Court of Appeal confined itself to noting the seriousness of the actions noted, the patrimonial situation of this one and the circumstance that these actions had allowed the company Casalva, of which Mr X … was the manager and the sole share naire, to realize a capital gain of 375,161 euros; that thus maintaining against Mr X … a financial penalty more than three times greater than the profit made by a third company, without investigating, as it was invited, if the latter had actually benefited from the profits on a personal basis. drawn from the breaches which were alleged against him, the court of appeal deprived its decision of legal basis with regard to article L. 621-15 of the monetary and financial code, in its red action  applicable in the cause;

But given, on the one hand, that, once the materiality of the breach defined by Article 622-1 of the AMF General Regulation has been established, it is for the person accused in this respect to demonstrate that the operation complained of was justified by a compelling reason; that having retained, by reason expressly adopted, that did not constitute such a reason the need, invoked by Mr X …, to obtain funds to be able to subscribe to the increase of the capital of the company Cyberdeck, the court of appeal , who did not have to do any further research, legally justified his decision;

And expected, on the other hand, that the provisions of Article L. 621-15 of the Monetary and Financial Code do not require the financial penalty to be set in relation to the profit possibly withdrawn from the transactions in question, since this penalty remains below the applicable limit in the absence of profit; that by referring to the seriousness of the breaches committed by Mr X … to set the amount of the penalty at a sum which did not exceed this ceiling, the court of appeal, which was therefore not required to proceed to the research covered by the second branch, legally justified its decision; From which it follows that the means is not founded in any of its branches; FOR THESE REASONS :

Condemns Mr X … to the costs; Considering Article 700 of the Code of Civil Procedure, rejects his request and condemns him to pay the sum of 2,500 euros to the Financial Markets Authority; Thus done and judged by the Court of Cassation, commercial, financial and economic chamber, and pronounced by the president in his public hearing on March 23, two thousand and ten. MEANS APPENDIX to this judgment Average produced by the SCP Gatineau and Fattaccini, lawyer advising for Mr X .. IT IS COMPLAINED with the contested judgment to HAVE rejected the appeal of Mr X … against the decision of the second section of the AMF sanctions commission on December 6, 2007;

the financial instruments to which this information relates, and that article 621-1 of the aforementioned general regulations defines inside information as precise information which has not been made public and which, if made public, would be liable to ” have a significant impact on the price of the security; • Mr X .. infringed this prohibition by assigning 1,143,447 Cyberdeck action between 4 and 13 October 2005, the latter date being the date on which the transaction was made public, when he was necessarily informed of the existence and main characteristics of the planned capital increase, reserved for the company Casalva Germany GmbH, of which he was the manager and the sole share naire, at a price of € 0.20 and for an amount of at least € 1 million, conditions that he acknowledged to have negotiated himself before the offer was presented to the manager of Cyberdeck through the intermediary of Euroland , on October 4, 2005, then approved, less than an hour later, by the board of directors of Cyberdeck, and while this precise information, relating to a large-scale transaction on the capital of an issuer, was such as to have a significant influence on the price of the share, which turned out since, when listing resumed on October 24, 2005, the share Cyberdeck fell by more than 19% and that this sale benefited him indirectly since it allowed the company Casalva Germany GmbH, of which he was the sole share naire, to realize a capital gain of 375,161 euros; – with regard to short sales: • it follows from the provisions of Article 517-2 of the AMF General Regulation, reproduced in substance in Articles 560-1 and 560-2 of said regulation, that, on a market in cash, the buyer is liable for the funds and the seller for the securities as soon as the order is executed, • the file reveals that between October 4 and 13, 2005, Mr X .. a, at the rate of four interventions ( on October 4, 2005, through ODDO et Compagnie, then on October 11, 12 and 13 through EFI), sold 1,143,447 Cyberdeck shares that it was unable to deliver before the following October 17, in violation of these texts ”;

AND FOR THE REASONS ADOPTED THAT “On the breach of insider: Considering that it is reproached to Mr. Thierry X …, on the basis of articles 621-1, 622-1 and 622-2 of the General Regulations of the AMF to have between 4 and 13 October 2005 and on behalf of the company CASALVA GERMANY GmbH of which he was the director and sole share nary, sold 1,143,447 Action s CYBERDECK when it was aware of inside information relating to the existence of a plan to increase the capital of the latter company; Considering that it follows from Article 622-1 of the AMF General Regulations, in its version prior to the decree of December 30, 2005, which remains applicable to the facts of the case, that “any person mentioned in Article 622-2 must refrain from using inside information that it holds by acquiring or transferring, for its own account or for the account of others, either directly or indirectly, who was the only proposed investor, as well as on the subscription price fixed, at the request of Mr. Thierry X …, at 0.20 ° € only; that these modalities were necessarily adopted before October 4, 2005, the date on which they were approved by the board of directors of CYBERDECK, that the investment had to be preceded by a contribution to the current account of the company CASALVA GERMANY GmbH already intervened, so that the probability of it happening was very high; Considering that this type of information, relating to a large-scale transaction on the capital of an issuer, is likely to have a significant influence on the price of its security; that moreover, when listing resumed on October 24, 2005, the CYBERDECK share has fallen by more than 19%; that consequently, the information in possession of Mr. Thierry X … was well, in all its elements, “privileged” within the meaning of Article 621-1 of the General Regulation of the AMF; Considering that the abstention obligation imposed on the holder of inside information is absolute; that consequently, the failure is characterized by the simple reconciliation chronological between the detention of information and its exploitation, except, for the person implicated, to report proof that the operation was justified by a compelling reason; that, if the transfer by Mr. Thierry X …, on behalf of the company CASALVA GERMANY GmbH, s CYBERDECK between 4 and 13 October 2005 is not contested, it is limited to invoking the need to obtain funds in order to be able to subscribe to the capital increase of CYBERDECK; that such an increase is indicative of the total lack of justification for the behavior of the accused; Considering that all the elements constituting the breach of insider have therefore been gathered, the sales made at the initiative of Mr. Thierry X … on behalf of CASALVA GERMANY GmbH between October 4 and 13, 2005 having unduly benefited, not only the latter company, which was able to realize a capital gain of € 375,161, but also, indirectly, Mr. Thierry X …, who was the only share naire; B. On short sales: Considering that Mr. Thierry X … is also accused, on the basis of article 517-2 of the AMF General Regulations, of having sold the CYBERDECK shares on behalf of the company CASALVA GERMANY GmbH uncovered whereas, according to the terms of the statement of objections, these actions s were “not eligible for the Deferred Settlement Service”; Considering that it follows from the provisions of this article, reproduced in substance by articles 560-1 and 560-2 of the General Regulations, which does not include any softer measure likely to find application in the present case, than “on a spot market , the buyer is liable for the funds, the seller for the securities, upon execution of the order “; Considering that October 4, 2005, Mr. Thierry X … passed a sale order relating to 690 433 titles CYBERDECK; that it was only on October 17, 2005, thirteen days later, that these actions s were credited to the account of CASALVA GERMANY GmbH and on October 18, 2005, sales transactions were regularized vis-à-vis the market; that between 11 and 13 October 2005, Mr. Thierry X … then spent three orders of sale relating to 453 014 titles CYBERDECK; that it is established that the date of treatment of these orders was modified manually to be postponed to October 18, 2005, that is to say between five and seven days after the date on which they intervened; that it is not disputed that these actions s were not eligible for the Deferred Settlement Service; Considering that consequently, it is established that Mr. Thierry X …, acting on behalf of the company CASALVA GERMANY GmbH, sold 1,143,447 CYBERDECK securities that he was not able to deliver immediately, in violation of article 517-2 of the AMF General Regulations ”;

1. ALORS THAT does not constitute a breach of insider the use of inside information justified by an interest other than personal; that such is the case when the sale of the securities of a company makes it possible to raise without delay the funds necessary for an operation of increase of the capital intended to ensure the sustainability of this company; that in this case, Mr. X … maintained that the company CASALVA GERMANY had sold the securities of the CYBERDECK transfer only in order to obtain the funds necessary to finance a possible increase in capital, which had indeed taken place (cf. judgment, p. 4, antepenultimate paragraph); that by affirming that Mr. X … had committed an insider’s fault in that, necessarily informed of the existence and the main characteristics of the Action s of it before the transaction is made public, that this transfer had indirectly benefited him, since she had allowed the company CASALVA GERMANY, of which he was the sole Action nary, realize a capital gain, and that the simple chronological reconciliation between the possession of the information and its use, except for an overriding reason not established in the present case, characterized the breach of an insider, without at any time seeking, as it was however expressly invited to do so, whether the transfer of CYBERDECK securities was not justified by an interest other than personal, namely by the need to immediately raise the funds necessary for a capital increase operation likely to ensure the sustainability of this company, the Court of Appeal deprived its decision of legal basis with regard to articles 621-1, 622-1 and 622-2 of the General Regulations of the Autorité des marchés financiers;

AND AGAIN FOR THE OWN REASONS THAT “in view of the provisions of Article L. 621-15 of the Monetary and Financial Code, the seriousness of these actions, which undermined the protection of investors and the proper functioning of the market and call in this respect an exemplary sanction – being underlined that they allowed the company Casalva Germany GmbH to realize a capital gain of € 375,161 – and to the personal situation of Mr X … which, apart from a few personal bank account statements , does not produce any proof of its current assets nor of the allegedly seriously burdened situation of the company Casalva Germany GmbH and which, contrary to what it claims, is not intended to be impoverished by the amicable liquidation of this company, whose assets in 2005 amounted to 12 M € for a debt in 2007 of 7.5 M €, itself being the holder of a credit current account of 7 M €, the sanction of 1,200,000 euros which was imposed is proportionate and must be maintained ”;

AS WELL AS ON THE REASONS POSSIBLY ADOPTED THAT “the behavior of Mr. Thierry X … having consisted, while he was in possession of inside information, in making the company CASALVA GERMANY GmbH sell short a very large number of Actions before they drop significantly, infringed the rights of investors at the same time as it compromised the proper functioning and integrity of the market, so that it takes on a particular seriousness calling for an exemplary sanction ; It follows from Article L. 621-15 of the Monetary and Financial Code, as ed Action resulting from the same law, that a pecuniary sanction may be pronounced against any perpetrator of acts referred to in c) and d) of II of article L. 621-15 of the said Code, which may not exceed € 1,500,000 or the tenfold of the amount of any profits made; that it is not disputable that the failures attributable to Mr. Thierry X … have, indirectly, benefited personally, since they allowed a company of which he was and of which he is still the only action to realize a capital gain in the amount of € 375,161; Considering that the respondent indicated at the meeting that, in the company CASALVA GERMANY GmbH, in amicable liquidation, whose assets amounted to at least € 12 million at the end of 2005 and whose current debts do not do not exceed 7.5 M €, his current account being a credit of 7 M €; he did not comment on other property in its possession, it exerts current LEMENT a board of business activity in Switzerland; that thus, it has, not only an important inheritance, but also of resources, of which it did not indicate the amount; Considering, that consequently,

2. ALORS in the alternative THAT the amount of the sanction pronounced by the sanctions commission of the Autorité des marchés financiers must be set according to the seriousness of the breaches committed and in relation to the advantages or profits possibly drawn from these breaches by the person implicated; in the present case, to maintain the sanction of 1,200,000 euros pronounced against Mr X …, the Court of Appeal confined itself to noting the seriousness of the actions noted, the patrimonial situation of that -Here and the circumstance that these actions had allowed the company CASALVA GERMANY, of which Mr. X … was the manager and the only share naire, to realize a capital gain of 375,161 euros; that thus maintaining against Mr. X … a financial penalty more than three times greater than the profit made by a third company, without seeking, as she was invited, if it had actually benefited in a personal capacity of the profits drawn from the breaches with which it was accused, the Court of Appeal deprived its decision of legal basis with regard to article L. 621-15 of the Monetary and Financial Code, in its draft action  applicable in the case.

 



Publication:  Bulletin 2010, IV, n ° 59

Contested decision: Paris  Court of Appeal of December 10, 2008

Titles and summaries:

STOCK MARKET – Autorité des marchés financiers – General regulations – Market abuse – Insider trading – Abstention obligations – Failure – Justification

Once the materiality of the breach defined by article 622-1 of the AMF General Regulation, it is up to the person implicated in this regard to demonstrate that the offending transaction was justified by a compelling reason.

Is legally justified the decision of sanction retaining that does not constitute such a reason the need to obtain funds to be able to subscribe to the increase of the capital of the company.

STOCK EXCHANGE – Autorité des marchés financiers – Powers – Sanctions –

Financial penalty – Amount – Proportionality criterion The provisions of Article L. 621-15 of the Monetary and Financial Code do not require the amount of the financial penalty to be set in relation to the profit possibly withdrawn from the incriminated transactions, provided that this amount remains below the applicable ceiling in the absence of profit.

The Court of Appeal which, referring to the seriousness of the breaches committed, sets the amount of the penalty at a sum which does not exceed this ceiling.

On n ° 1: To be reconciled: Com., June 18, 1996, appeal n ° 94-13.660, Bull. 1996, IV, No. 175 (4) (rejection); Com., October 5, 1999, appeal n ° 97-17.090, Bull. 1999, IV, n ° 157 (2) (rejection) and the judgment cited. On n ° 2: To be conferred: CE, June 6, 2008, request n ° 299203, published in the Lebon Recueil Applied texts:

On number 1: article 622-1 of the general regulations of the Autorité des marchés financiers On number 2: article L. 621-15 of the Monetary and Financial Code

Court of Cassation

Criminal Chamber

Public hearing of June 14, 2006

Partial reversal


N ° of appeal: 05-82453
Published in the bulletin

President: M. Cotte
Rapporteur: M. Dulin.
Advocate General: M. Charpenel.
Lawyer: Me Bouthors.

FRENCH REPUBLIC

IN THE NAME OF THE FRENCH PEOPLE


IN THE NAME OF THE FRENCH PEOPLE

THE COURT OF CASSATION, CRIMINAL CHAMBER, in its public hearing held at the Palais de Justice in PARIS, delivered the following judgment:

Deciding on the appeal brought by:

– X … Georges,

against the judgment of the PARIS Court of Appeal, 9th Chamber, dated March 24, 2005, which, for insider trading, sentenced him to a fine of 2,200,000 euros;

The COURT, ruling after debates in the public hearing of May 31, 2006 where were present: Mr Cotte president, Mr Dulin adviser rapporteur, Mr Challe, Ms Thin, Desgrange, MM. Rognon, Chanut, Mmes Nocquet, Ract-Madoux councilors of the chamber, MM. Soulard, Lemoine, Mme Degorce referendum advisers;

Advocate General: M. Mouton;

Clerk of the chamber: M. Souchon;

On the report of the counselor DULIN, the observations of Me BOUTHORS, lawyer in the Court, and the conclusions of the Advocate General CHARPENEL, the lawyer of the applicant having had the floor last;

Considering the brief produced;

On the first ground of cassation, taken from the violation of articles 6 and 13 of the European Convention on Human Rights, 66 of the constitution, first, 171, 385, 591 and 593 of the code of criminal procedure, together violation of rights of defense;

“in that after having joined the incident to the merits, the Court validated the procedure followed against the plaintiff whom it had criminally condemned for insider trading;

to those who suffer damage to seek compensation before the competent national court; that consequently, the request for the annulment of the proceedings or, in the alternative, for the Court to consider that it is not in a position to rule with regard to the provisions of Article 6-1 of European Convention will be rejected;

“1) whereas, on the one hand, the unreasonable length of criminal proceedings may be a ground for annulment with regard to the fundamental principles of a fair trial in the event of a substantial infringement of the rights of the defense; that this requirement violates and disregards its office the Court which refuses to investigate whether the accused, prosecuted for insider trading, is not seriously disadvantaged in relation to the prosecution because of the length of the proceedings (15 years) and the inadequacy of the investigation, during which he had only been heard once (12 years previously) without the slightest confrontation and without the possibility for him to assert his elements of defense before his referral to the criminal court; thathaving regard in particular to the nature of the charges brought against him, the Court had to specifically examine whether the situation thus made to the accused did not reveal, before the trial courts, a clear imbalance to his disadvantage with regard to the rights of his defense;

“2) while, on the other hand, specially required to rule on the incompatibility of the procedure with the fundamental guarantees of a fair trial, the Court must expressly justify its decision on this point without being able to confine itself to referring the parties to subsequently seek damages before the civil court for poor functioning of the public service of justice; that the Court could not legally determine as it did without otherwise explaining, for its own reasons, the scope of the unreasonable nature of the length of the proceedings in relation to the exercise of the rights of the defense;

“3) while, on the third part, violates the equal treatment of litigants the Court which acquits the co-convicts for the benefit of the doubt by pointing out that the investigation had not enabled them to obtain useful confrontations and which nevertheless enters in the process of conviction against the only applicant whose situation was however identical to that of the precedents with regard to the disregard of the rights of the defense and the requirements of a fair trial “;

Whereas, in order to set aside the objection of nullity taken, in particular, from the violation of Article 6.1 of the European Convention on Human Rights and which would result from the excessive length of the proceedings, the judgment states that the breach reasonable time within the meaning of this text, assuming it has been established, does not invalidate the proceedings and only allows those who suffer damage to seek compensation before the competent national court;

Whereas by pronouncing thus, the court of appeal justified its decision;

From where it follows that the means, inoperative in its third branch, the release of co-accused not infringing the principle of the fair trial, could not be accepted;

On the second ground of appeal, alleging violation of Articles 6 and 7 of the European Convention on Human Rights and Fundamental Freedoms, 14 of the International Covenant on Civil and Political Rights, of Directive No. 89/592 / EEC of 13 November 1989 and of directive n ° 2003/124 / EEC of 22 December 2003, of article 10-1 of the ordinance of 28 September 1967, of article L. 465-1 of the monetary code and financial, articles 112-1 and 113-2 of the penal code, 591 and 593 of the code of penal procedure;

“in that the judgment under appeal validated the proceedings and condemned the plaintiff for insider trading to a tort fine of 2,200,000 euros;

they are not among the directors of the issuing company, ie Société Générale; that they are considered to have had, during the exercise of their profession or their function, inside information on the prospects or the situation of Societe Generale or its prospects for development;

issuer or any other person having access to confidential information concerning him; that the defense added that besides the law November 15, 2001 had filled in its turn this gap by including a new category of insiders, not envisaged previously; that the COB regulation which is mentioned relates to the breach of insiders, was taken in application of the law of January 22, 1988 and cannot add to the legal text; that the fact that this body did not distinguish between the different categories of insiders before this text of 1990 in no way implies that the criminal offense limited secondary insiders to people with a professional connection or a function related to the ‘transmitter; that besides the text does not has not been modified on this point; that the law of August 2, 1989 created an offense commonly called “dinner in the city” for any person who has inside information in the exercise of his profession or his function, communicates it to a third party outside the normal framework of this exercise;

that the law of July 2, 1996 extended the offense to non-market transactions; that the law of November 15, 2001 aimed at the category of the persons pursued previously under the qualification of concealment of insider trading; that the text on insider trading applicable at the material time and which is still current does not require that secondary insiders have had a professional relationship with the issuer of the security but only through their profession or their function, they were brought to know the inside information concerning this issuer or the security, which is the case since Jean-Charles Z … and Georges X …, managers of companies which take holdings or make investments, were approached by Georges A … in this capacity and were able to have inside information on this subject; that, if they really obtained it, they had a duty of abstention on the market of this title; that, on the concept of privileged information mentioned as such in the text of the law, it is for the case law to define it, being a question of fact; that the information must be precise, but it does not have to be complete, it must relate to a sufficiently developed project to be completed even if hazards are always possible, be confidential and therefore unknown to the public , its use must be liable to influence the share price, as rumors do not constitute inside information; that in the case in point, the information concerned a significant stake in the capital of Société Générale at the initiative and under the authority of Georges A …, who had collected as part of a concerted purchasing policy 5 billion; that a complex and opaque strategy had been put in place to preserve its confidentiality and the agreement of the government had been acquired, the rumors concerning the privatized companies and among them the Société Générale, were not mentioned at the time of the disputed period of the financial transaction of Marceau Investissement, but only movements on the share and the renoying desired by the public authorities; that the public was not informed until October 28 of the ” there is a need to sign a confidentiality letter; but that it is a question of determining if the defendants really received this inside information and if they knowingly used it to carry out operations on the title; there is a need to sign a confidentiality letter; but that it is a question of determining if the defendants really received this inside information and if they knowingly used it to carry out operations on the title;

– and to any other participant in the meeting – after a discussion on the privatizations, if he was interested in participating with other investors in the acquisition of Société Générale shares, this operation being initiated by Marceau Investissement led by Georges A …; that Pierre B … had been actually informed early August 1988 project on this bank and following his refusal to participate, Georges A … had requested to seek investors and receive titles; that Georges X …, who regularly called on independent advice, mandated MY …, director of a British Investment Management company so that he contacts the directors of Marceau Investissement for details on the said project; that on September 14, MY … met Mme de C …, collaborator of Georges A …, then Georges A … himself, and immediately reported to Georges X …; that the object was indeed the acquisition of a significant stake by Marceau Investissement in the capital of Société Générale; that MY .. indicated during the investigation that his interlocutor had specified to him that this participation would be 35% – precision which appears in the notes of MY .. -, that Georges A … wanted the presidency of the bank , that the operation had the government’s approval and had already brought together major investors such as Caisse des Dépôts et Consignations, l’Oréal, Perrier, that it was desired a participation of Quantum Fund to the tune of 50 million dollars; that the strategy had been described in detail, either an investment through SGIP, or direct share purchases by Quantum Fund with a three-year lock-in commitment; that the same day, Georges X … joined the opinion of MY …, declined this proposal because the method of investment, and particularly the convention of blocking, did not satisfy him; live action by Quantum Fund with a three-year blocking commitment; that the same day, Georges X … joined the opinion of MY …, declined this proposal because the method of investment, and particularly the convention of blocking, did not satisfy him; live action by Quantum Fund with a three-year blocking commitment; that the same day, Georges X … joined the opinion of MY …, declined this proposal because the method of investment, and particularly the convention of blocking, did not satisfy him;

that Mme de C … had relaunched in vain MY … and sent documents on the Société Générale, transmitted to Georges X … who did not change his mind; that they made a short courtesy visit to Georges A … October 21 it seems; Gold, Georges X … a, for Quantum Fund, took the decision to acquire 160,000 shares of Société Générale securities on the London market, i.e. on September 22, 1988, resold on November 21 and October 12 and 13, resold at the October and November 21 liquidation, the realized capital gain was $ 2,280,000; that when he came to Paris in October, and following various interviews and the finding of overheating on the title whose movements seemed to him more political than financial, he had preferred to sell;

that Georges X … considers that the operation on Société Générale was not confidential, nor sufficiently defined and that he could acquire securities as much as at the same time, knowing the rumors about the stable cores of companies privatized since May, it had acquired a “bouquet” of these companies, Suez, Paribas and CGE; that Georges A … and Mrs. de C … declared having informed him on the main lines of the project concerning the Société Générale; that it is indisputable that Georges X … was informed on September 12 by Pierre B …, then on September 14 and the following days by Georges A … and Mme de C …, of the operation to acquire a significant stake by Marceau Investissement in the capital of Société Générale and that he was contacted specifically in order to be part of the round table that he declined; that the fact of not having signed a confidentiality letter and of not having more precision on the expected improvement of the possible management of this bank by Georges A … has no impact on the privileged nature of the information given, which was not known to the public as was previously developed; that Georges X … was therefore well informed on the target and the means to carry out the operation, the scale of it, the participating investors, the pick-ups of shares, which explained the movements observed on the title; that he was even relaunched through his advisor; that the project exposed, even if it could still evolve, was therefore not hypothetical and contained sufficient details for it to be possible to consider that the information given was privileged;

that also the insider trading is constituted with regard to Georges X … which had a duty of abstention on the title Societe Generale, no particular circumstance obliging it to intervene on the market of this title;

“for the proper reasons, finally, that with regard to the privileged nature of the information provided, it is established that, on September 12, 1988, Georges X … was informed by Pierre B … of the precise plan to acquire a stake significant within Société Générale on the initiative and under the authority of Georges A …, President of Marceau Investissement, whereas at that date, the only very general information known to the market was limited to the fact that the securities of all the privatized public companies were probably underlisted and that an operation of what was known as “pitting” and “re-kitting” within the recently privatized companies was possible; ‘information received was thus ignored by the public;

that the information was specified on September 14, date on which Tim Y …, mandated by Georges X …, met Georges A … and his collaborator in order to know the detail of the project; that on this occasion, if it is correct to maintain that there was no real business plan, it should be noted that Georges X … received financial information, that the assembly of the operation was described to him in its two branches: direct investments through the company created for the occasion for the purpose of acquiring stakes in various companies, or direct purchases of shares of Société Générale with a blocking commitment for three years; that MY … indicated, during his hearing on May 19, 1992, that it had been specified to him by the collaborator of Georges A …, that the aim of the operation was to acquire 35% of Société Générale, information that he did not deny during his second hearing on 6 November 1992; that it was indicated to Georges X … that this operation had the support of the government;

that on the occasion of contacts which will continue during approximately ten days, MY … will receive by fax of the draft agreements on behalf of Mrs. de C …; that Georges X …, in order to allow him to make an informed decision on the proposal that was made to him to participate in the large-scale operation planned for Société Générale, thus obtained from his interlocutors a precise, confidential information likely to influence the price of the security due in particular to the vast securities pick-up operation that was envisaged; that in addition, inside information was decisive for the transactions carried out;

that indeed, as regards the characteristics of the operations carried out, if it is indeed wrong, as the defendant claims, that were retained against Georges X …, the purchases of the 22 and September 27, 1988 carried out in London through Goldman Sachs, as a result of over-the-counter transactions outside the stock market, when the rules in force at the material time required that the transaction in question had been realized on the market, on the other hand, Georges X … cannot seriously claim that the surplus of its disputed acquisitions, relating to 95,000 titles, were current and normal operations which would not have been determined by the information that he had just received; that Georges X …, who had decided not to participate in the Georges A … transaction, because he did not wish to commit Quantum Fund to long-term investments without a very clearly defined exit strategy, began, on the other hand, to acquire the securities of Société Générale from September 22, 1988, and resold them within a short period of time allowing it to achieve a significant capital gain; that it does not demonstrate that the choice to acquire the shares of the Société Générale was prior to the information received during the month of September 1988; because he did not wish to commit Quantum Fund in long-term investments without a very clearly defined exit strategy, began, on the other hand, to acquire the shares of Société Générale from September 22, 1988, and proceeded to their resale within a short timeframe. allowing it to achieve significant added value; that it does not demonstrate that the choice to acquire the shares of the Société Générale was prior to the information received during the month of September 1988; because he did not wish to commit Quantum Fund in long-term investments without a very clearly defined exit strategy, began, on the other hand, to acquire the shares of Société Générale from September 22, 1988, and proceeded to their resale within a short timeframe. allowing it to achieve significant added value; that it does not demonstrate that the choice to acquire the shares of the Société Générale was prior to the information received during the month of September 1988;

that respect for equality between the various clients of the stock market imposes a duty of abstention on the part of the one who holds inside information concerning a given transaction;

that in this case Georges X … does not demonstrate the existence of any compelling reason which would have allowed him to escape this obligation and would have justified his intervention on the title Societe Generale; that Georges X … knowingly used privileged information; that consequently insider trading is established; that, on the sentence, taking into account the circumstances of the case and the personality of the accused who has never been the subject of conviction, it is appropriate to confirm the referred decision which condemned Georges X … to a fine of 2,200,000 euros;

“1 / whereas, on the one hand, the legislative or regulatory provisions subsequent to the law of 22 January 1988 having extended the field of the repression of insider trading to wider circles of persons liable to be prosecuted for reason their quality or the source of their information, the COB having moreover issued the opinion in 1988 that the facts of the case did not clearly fall within the scope of French criminal law in the state of the interpretation then accepted of article 10-1 of the ordinance of September 28, 1967, it was in favor of an aggravating retrospective interpretation that the Court deemed the prevention situated in October 1988 as falling within the scope of theaforementioned ordinance in its scheme applicable at the material time;

“2 / whereas, on the other hand, if it is forbidden for persons having, by reason of their profession or their function, inside information on the prospect of evolution of a transferable security, to carry out transactions on the market before the public has knowledge of it, it is on condition that this information is precise, confidential, of such a nature as to influence the value price and decisive of the transactions carried out;

that is deemed to have a “precise” character within the meaning of Article 1 of Directive 2003/124 / EEC of 22 December 2003, the information indicating a set of circumstances which exist or which can reasonably be think that there will be or an event that has occurred or that can reasonably be expected to occur, and whether it is sufficiently precise that a conclusion can be drawn as to the possible effect of this set of circumstances or this event on the price of the financial instruments concerned or derivative financial instruments linked to them; that this definition, more precise and narrow than that given by the previous directive, was applicable to the facts of the case;

“3 / whereas, on the third part by lending Georges X … privileged information from the banker Pierre B … on behalf of Georges A … on September 12, 1988, when it results on the contrary from the minutes of hearing of the latter (PV of December 6, 1990. D 1690) that Pierre B … had not been precisely informed by Georges A … of the conditions of the “collection of titles” that 22 the following September , the Court placed itself in contradiction with the documents in the file;

“4 / then, fourthly, that it is up to the prosecution to provide proof of the influence of inside information on the value of the security; that in the state of a” pickup “operation by a third party on the Société Générale securities market, the value of which, underestimated according to market analysts, must necessarily rise within the framework of the constitution, announced the previous spring by the public authorities, of a reorganization of the capital of privatized companies, including Société Générale, the Court, which has not otherwise explained the price of this security, has placed upon the defense the proof impossible to report that the operation of “pickup” in itself could not affect the value of the title;

that is stronger as well as said operation had rightly, was considered little credible by the accused; that in determining itself as it did, the Court reversed the burden of proof and violated the presumption of innocence;

“5 / whereas, on the fifth part, a wise investor who uses his knowledge of the mechanisms of the financial markets even though he has inside information is not punishable under insider trading; that by proceeding by way of pure affirmation, without further explanation and if the purchase of securities of newly privatized French companies, in September or October 1988, did not constitute a normal investment for a wise financier, the Court deprived its decision of any basis legal;

“6 / while, on the sixth part, the duty of abstention of a foreign operator is not unrelated to its national law, which made abstention subject to specific conditions (in particular the signing of a confidentiality letter) not met in the present case; by refusing to examine Georges X’s defense … establishing the conformity of his behavior with the rules of the State of which he was a national, the Court deprived its judgment of any legal basis;

“7 / while, on the seventh part, insider trading is an intentional offense; in the state of the financial competence of Georges X …, of his long-standing interest in French privatized companies in the As part of its investment strategy for the state of the market in September-October 1988, the Court proceeded by way of affirmation and did not examine whether the acquisition of a “bouquet” of shares in French companies recently privatized in mid-October 1988 could have been exclusively or directly determined by the disputed information lent to Georges X … on the previous September 12, more than a month earlier, thus depriving its decision of any legal basis on the intentional element of the offense;

“8 / then in any event, that the Court could not legally maintain the fine at its level pronounced by the first judges since it had expressly excluded from the prevention the purchases made in London and had not condemned the plaintiff only because of the operations carried out in Paris; that it follows from there that the maintenance of the fine pronounced in first instance is devoid of legal support “;

On the means taken in its first seven branches;

Whereas it results from the judgment under appeal and from the judgment which it confirms that Georges X …, director of the company X … Fund Management, established in New York and which managed the investment fund Quantum Fund, whose purpose was to make diversified international investments, was informed, on September 12, 1988, of a plan to acquire a significant stake in the capital of Société Générale formed by the company Marceau Investissement, headed by Georges A .. and what the latter was looking for investors;

that after obtaining, September 14, 1988, details of this operation which had received the approval of the government, Georges X … refused to participate;

that, however, it has, as of September 22, 1988, started to acquire titles of the General society, which it resold by realizing an important capital gain;

Whereas, to declare Georges X … guilty of insider trading, the judgment notes that in order to allow him to make an informed decision on the proposal which had been made to him to take a stake in the capital of Société Générale, the person concerned obtained precise, confidential information from his interlocutors likely to influence the price of the security and that this information which he knowingly used was decisive for the transactions carried out;

Whereas in the light of these reasons, proceeding from its sovereign assessment of the facts of the case and which characterize in all its elements, both material and intentional, the offense of which the accused was declared guilty, the Court of Appeal , which answered without insufficiency to the essential articulations of the conclusions before it, justified its decision;

But on the means taken in its eighth branch

Considering article 593 of the code of criminal procedure, together article 10.1 of the ordinance of September 28, 1967, modified by the law of January 27, 1988;

Whereas, on the one hand, any judgment or judgment must include the specific reasons for justifying the decision; that the insufficiency or the contradiction of the reasons is equivalent to their absence;

Whereas, on the other hand, according to the aforementioned article 10-1, in force at the material time, the author of the insider trading was liable to a fine of 5 million francs, the amount of which could be increased to beyond this figure, up to quadruple of the profit possibly realized, without the fine being able to be lower than this same profit;

Whereas after declaring Georges X … guilty of insider trading and ruling out purchases of 65,000 Société Générale securities made by mutual agreement, on September 22 and 27, 1988 in London, outside the stock market, the judgment confirms the fine of 2,200,000 euros pronounced by the criminal court;

But given that by ruling in this way, without specifying the amount of the profit made as a result of the only transactions retained relating to 95,000 Société Générale securities, the Court of Appeal did not enable the Court of Cassation to exercise control over the legality of the fine imposed;

From where it follows that the cassation is incurred on this head;

For these reasons :

BREAKS and ANNULS the above-mentioned judgment of the Paris Court of Appeal, dated March 24, 2005, in its only provisions relating to the amount of the fine imposed, all other provisions being expressly maintained, and so that it either retried, in accordance with the law, within the limits of the cassation thus pronounced,

REFERS the case and the parties before the Paris Court of Appeal, otherwise composed, to that designated by special deliberation taken in chamber of the council;

ORDERS the printing of this judgment, its transcription on the registers of the registry of the Paris Court of Appeal, its mention in the margin or following the partially canceled judgment;

Thus done and judged by the Court of Cassation, criminal chamber, and pronounced by the president on June 14, two thousand and six;

In witness whereof, this judgment has been signed by the president, the rapporteur and the clerk of the chamber;

 



Publication: Criminal Bulletin 2006 N ° 178 p. 616
Review of companies, 2007-01, n ° 1, p. 125-135, observations Bernard BOULOC.
Contested decision: Paris Court of Appeal, 2005-03-24

Court of Cassation
Commercial Chamber

Public hearing of June 23, 2004

Rejection


Appeal number: 02-17937
Unpublished

President: M. TRICOT

FRENCH REPUBLIC

IN THE NAME OF THE FRENCH PEOPLE


IN THE NAME OF THE FRENCH PEOPLE

THE COURT OF CASSATION, COMMERCIAL, FINANCIAL AND ECONOMIC CHAMBER, delivered the following judgment:

Whereas, according to the contested judgments (Paris, March 5, 2002 and June 27, 2002), at the beginning of 1999, a merger was considered between the company incorporated under Canadian law Alcan and the company Péchiney;

that on April 13, 1999, the presidents of these two companies held, in the presence in particular of Mr X …, director of strategy and management control of the Péchiney group, a meeting during which the company Alcan proposed a merger of two companies; that on April 18, 1999, Mr X … passed a purchase order for 3 920 Alcan securities which was executed on April 21 at the price of 27.03 euros; that these titles were sold on August 25, 1999 at the price of 32.75 euros;

that by decision of September 18, 2001, the Commission des Opérations de Bourse (the Commission) considered that Mr X …, who held privileged information because of his functions within the company Péchiney, had breached the obligation to abstention imposed on him by article 2 of its regulation n ° 90 08, that the transaction had given him an unjustified advantage and that he had infringed the equality of information of investors, and pronounced against him a sanction pecuniary of 37,570 euros accompanied by a publication measure; that Mr X … has appealed against this decision;

On the first plea, taken in its two branches:

Whereas the President of the Commission criticizes the judgment of 5 March 2002 for having invited the parties to explain the possible nullity of the decision of 18 September 2001 then, according to the means:

1) that there is no derogation from the general provisions of the new Code of Civil Procedure for appeals against sanction decisions of the Commission, which then constitutes a Tribunal within the meaning of Article 6, 1, of the Convention European Union for the Protection of Human Rights and Fundamental Freedoms; that the disputes relating to the regularity of the composition of the court must be presented, on pain of inadmissibility, from the opening of the debates, failing which no irregularity can be subsequently pronounced on this count, even ex officio; that as the Commission had argued in its written observations, Mr X .. had necessarily been made aware of the names of the members composing the Commission at the opening of the meeting of September 18, 2001, at which he was present, assisted by his counsel, by prior consultation of the file made available to him in application of article 6 of the amended decree of 23 March 1990, which contained the minutes of a previous meeting of 24 July 2001 at which he and his council were also present, and mentioning these names and had been able to realize the identity of the members of the Commission during the two successive sessions; that thus, the court of appeal could not automatically raise the irregularity of the composition of the Commission without seeking whether Mr X … n ‘

2) that the judge can not raise ex officio that the means of law and not the mixed means of fact and law; that the court of appeal could not therefore automatically raise the plea taken that the rapporteur and interested persons would have participated in the decision, these facts not being in the debate (violation of articles 12 and 16 of the new Code civil procedure);

But given, on the one hand, that the procedure for injunctions and sanctions followed before the Commission des Opérations de Bourse, governed by Title 1 of the decree of March 23, 1990, is not subject to the provisions of the new Code of Civil Procedure , unimportant in this respect that the Commission constitutes a tribunal within the meaning of Article 6, 1, of the European Convention for the Protection of Human Rights and Fundamental Freedoms;

And expected, on the other hand, that the Court of Appeal did not automatically raise the means taken that the rapporteur or interested persons would have participated in the decision but that, of pure right, taken of the circumstance that this one, which did not include the indication of the name of the members having deliberated, did not make it possible to control that it had been returned under the conditions of independence and impartiality required;

From which it follows that the means cannot be received in any of its branches;

On the second plea:

Whereas the President of the Commission criticizes the judgment of 27 June 2002 for having annulled the decision of the Commission and says there is no need for a sanction with regard to Mr X … then, according to the plea, that the annulment of the judgment of March 5, 2002 will result in the annulment as a consequence of the judgment of June 27, 2002 which is the sequel and consequence, in application of article 625 of the new Code of Civil Procedure;

But whereas the single complaint formulated against the judgment of March 5, 2002 having been rejected, the means became inoperative;

On the third plea, taken in its two branches:

Whereas the President of the Commission further criticizes the judgment of 27 June 2002 for having annulled the decision of the Commission of 18 September 2001 then, according to the means:

1) that if the principle of objective impartiality prohibits a judge who has already heard of the case from subsequently exercising judicial functions in the same case, the approval by the Commission of the minutes of a previous sitting, at the end of which a sanction has been pronounced, constitutes a purely administrative formality (violation of Article 6, 1, of the European Convention for the Protection of Human Rights and Fundamental Freedoms);

2) that the absence of legislative or regulatory provisions governing the methods of proof of the composition of the Commission made this proof admissible by any means; that the Court of Appeal therefore had to assess the probative value of the minutes and the attestation of the members of the Commission (violation of Article 1153 of the Civil Code);

But whereas any decision of a court must contain the indication of the name of the judges who deliberated on it; that the Court of Appeal rightly held that the failure to indicate the names of the members who deliberated could not be replaced by the approval, at a subsequent meeting, of the minutes of the meeting at the outcome of which the decision was taken, nor by the certificate signed by the members of the Commission affirming to have sat at this meeting ; that the means is founded in any of its branches;

And on the fourth way:

Whereas the President of the Commission finally criticizes the judgment of 27 June 2002 for having said that there was no sanction against Mr X … then, according to the means, that in addition to the notification of the complaint general to have held privileged information “within the framework of the project of merger between the companies Péchiney and Alcan”, Mr X … had received the invitation to take note of the documents of the file establishing the hostile character of this project on behalf of the company Alcan and was able, moreover, to respond on this point to the written observations of the Commission before the court ofappeal (violation of articles 2 and 14 of the decree of March 23, 1990 in their wording resulting from the decree of August 1, 2000 and 16 of the new Code of Civil Procedure);

But expected that it is justified neither the existence of documents of the file establishing the hostile character of the project on behalf of the company Alcan nor of written observations of the Commission evoking this point before the court of appeal; that the plea cannot be accepted;

FOR THESE REASONS :

DISMISSES the appeal;

Leave the costs to the public treasury;

Considering article 700 of the new Code of Civil Procedure, rejects the request of Mr X …;

Thus done and judged by the Court of Cassation, Commercial, Financial and Economic Chamber, and pronounced by the President in his public hearing on June twenty-third, two thousand and four.



Contested decision: Paris Court of Appeal (1st civil chamber – section H) 2002-03-05, 2002-06-27

 

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;

ON SANCTIONS

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.

Leave a Comment

Your email address will not be published.


CAPTCHA Image
Reload Image