Analyst Who Made $37,000 in an Hour Now Faces $815,000 Fineby
Ex-Kepler analyst faced French insider-trading hearing Friday
AMF says Geoffroy Stern made 289,000 euros on 28 trades
A former equity analyst made more than 34,000 euros ($37,000) in an hour investing in Vallourec SA a day before he published a recommendation raising the French company to “outperform.” Now, he faces a 750,000 euro insider-trading fine.
Former Kepler Cheuvreux SA analyst Geoffroy Stern made 28 trades based on draft recommendations, including his own, the brokerage was set to publish hours later, officials at France’s Autorite des Marches Financiers said at a hearing Friday. In total, Stern made about 289,000 euros on the transactions over a period of two years, according to Benjamin Mauduit, a member of the regulator’s board.
Stern wasn’t “exposed to the same risk as other market participants,” said Lucien Millou, another AMF official. For each of the 28 trades linked to Kepler ratings “the share price always moved in the direction of the broker’s recommendation.”
Authorities globally have cracked down on insider trading in the last decade, using the crime that’s seen everyone from hedge-fund magnates to Martha Stewart go to prison to send a message to the financial industry in the wake of the 2008 credit crunch.
Stern’s lawyer, Samuel Sauphanor, contended that the financial analysis was based on public data, even in draft form, and can’t be considered insider information under French law. Stern told the panel that he never thought he was doing anything wrong.
“I truly didn’t expect to land in front of the AMF with these operations. I really didn’t think I was breaching market-abuse rules,” Stern said. “I’m 36, I don’t want my life to be ground to a halt. I don’t know whether I’d be able to bounce back again.”
Stern was fired in 2014 in the wake of the AMF investigation and eventually found a job at a consulting firm specializing in satellite communications where his salary was cut in half, Sauphanor said. It would take him about 20 years to pay a 750,000-euro fine in light of his and his wife’s current resources, the lawyer said.
Mauduit said that in addition to the quick return on Vallourec, Stern made more than 16,000 euros in 37 minutes on Lagardere SCA shares. For each of the 28 contentious trades, Stern used contracts for difference, derivatives that amplified wagers on share movements with a small down payment, investing on average 685,000 euros, with a maximum investment of about 1.5 million, the AMF official said.
His knowledge of the analysts ratings and when they would be published gave him a clear advantage compared with the general public, which must be considered insider information, according to Mauduit.
“Stern knew the imminent event was likely to impact the share price,” Mauduit said. He recommended that the AMF’s enforcement committee fine Stern 750,000 euros and ban him from working as an analyst for 10 years.
Florence Fricaudet, another lawyer for Stern, said that AMF investigators acted “in an opportunistic way,” ignoring transactions where Stern lost money.
Sauphanor also said that while financial analyst’s memos can have an impact, the influence is indirect and can be “totally neutralized” by simultaneous notes from better known firms such as Goldman Sachs Group Inc. or Morgan Stanley.
Fricaudet said her client’s behavior is “a far cry” from what is typically seen in insider-trading cases because Stern made no efforts to conceal the transactions and paid taxes on his gains. She said that while Stern is no longer a financial analyst he has the same investment strategy and still uses contracts for difference to wager on share movements.
She said that it’s misleading to say Stern made 289,000 euros through the disputed trades as hedging costs, brokerage fees and taxes left him with a profit of about 105,000 euros.
“If Stern thought he was using insider information why would he have bothered to systematically hedge his positions?” Sauphanor asked.