Even Your Mom Can't Protect You in an Insider-Trading CaseBy
Pair fined $1.1 million in French insider-trading probe
Regulator finds traders using relatives’ accounts as cover
There are some things that even your mom can’t get you out of.
French authorities have snagged two cases of insider trading in less than 24 hours where the wrongdoing was carried out using the mother of one of the accused men as a veil.
Two men were fined a total of 946,000 euros ($1.1 million) Tuesday after being snared in a French insider-trading probe by a cell phone linked to one of their moms. On Wednesday, regulators published the penalty for a former Standard & Poor’s analyst who admitted that he used his mother’s bank account to place three questionable trades.
France’s markets regulator fined Sylvain Lemaire, a broker who worked at Louis Capital Markets, for sharing insider information with Israel-based investor Marc-Albert Obadia to give him an edge in seven trades between 2011 and 2013, including a transaction involving shares in Vivendi SA’s Havas. The regulator’s enforcement committee also issued a 10-year industry ban against the broker.
Investigators at the Autorite des Marches Financiers noticed Obadia systematically matching buy orders processed by Lemaire for a Dexia fund about five years ago, and looked for connections between the pair. The AMF’s enforcement committee settled on the fine after coming to the conclusion that Lemaire must have used a secret phone -- containing a SIM card owned by the investor’s mother -- to share confidential information with Obadia.
“The repetitiveness of the breaches found against Lemaire and the context in which they were carried out -- during his work as a stock broker -- make them particularly serious,” the AMF said Tuesday in its decision. The enforcement committee also noted that Lemaire had said during the investigation that he gave advice to Obadia in exchange for introductions to contacts who might invest if he started his own hedge fund.
Authorities have cracked down on insider trading in the last decade, using the crime that’s seen hedge-fund magnates go to prison to send a message to the financial industry. Billionaire Paul Singer’s Elliott Management Corp. was fined 16 million euros three years ago for using material information in the 2010 purchase of shares of a toll-road company in France.
The decision on Lemaire and Obadia came 24 hours before former Standard & Poor’s analyst Lucas Sevenin was fined 90,000 euros. At a hearing last week, he said he used his mother’s account to buy Vallourec SA shares based on inside information he had gleaned from the company as part of his job.
Lemaire, who was fined 450,000 euros, and Obadia, who is to pay 496,000 euros, denied sharing information. At a Nov. 24 hearing, their lawyers argued that no concrete proof was found that the two conspired on the trades using the phone owned by Obadia’s mother.
Alexandre Bisch, a lawyer at Debevoise & Plimpton in Paris, said the fines are “significant,” noting in particular that Obadia was fined 10 times the amount he made through the seven contentious trades when generally penalties are between 3 and 5 times higher.
“This fits in with the current policy of the enforcement committee,” Bisch said. The president of that AMF body recently said the very high ceiling set by lawmakers “was a clear incentive to increase penalties.”
For investigators, hard evidence of secretive insider dealings such as wire-tap recordings or emails is difficult to come by. French law allows the AMF to build cases by relying on a consistent body of clues so long as these show that only a person with insider information could have entered such transactions.
In total, AMF investigators argued Lemaire had shared confidential information with Obadia 36 times. However, the enforcement committee decided to focus only on seven trades after noting that the data allegedly shared was either obsolete or hadn’t yet become insider information for the other trades.
Pascal Wilhelm, a lawyer for Lemaire, said his client would appeal the decision. An attorney for Obadia didn’t immediately respond to requests for comment.
Wilhelm said at the November hearing that the accusations against his client don’t hold up. When there’s no hard evidence, the consistent body of clues has to be “non-equivocal, understandable and not debatable. We’re very far from that here,” Wilhelm said.
The lawyer said investigators found “no transcripts of calls, you have no transcripts of text messages, you have no geographic localization. You have nothing. You only have an opinion.”
Wilhelm also said Lemaire wasn’t the only person who could have had the alleged insider information, given that Goldman Sachs Group Inc., one of the main prime brokers Lemaire worked with, and Dexia also intervened in the trades.
Virginie Adam, an official speaking on behalf of AMF investigators, said the symmetry between the maximum price and volume of Dexia’s buy orders and Obadia’s matching sell offer couldn’t “be a mere coincidence.” On average, the sell orders appeared 8 minutes and 45 seconds before Dexia’s buy instructions were entered in the bank’s execution system, she said during the hearing.
“Obadia’s sell orders were calibrated to match Dexia’s buy orders,” enabling him to make a profit of nearly 290,000 euros through 36 French trades, said Adam. “The only explanation for Obadia’s transactions is that he had insider information” provided by Lemaire, the AMF official said.
Laurence Cechman, Obadia’s lawyer, criticized the investigators’ findings and the lack of tangible evidence of discussions between the pair. She also said that her client’s rights to a defense were hampered by the AMF’s failure to translate documents that were seized at Obadia’s home in Israel. Her arguments were dismissed by the AMF’s enforcement committee.
Lemaire said the AMF case was flawed.
Because of extreme market volatility amid sovereign debt crises in the period, it was “inconceivable” that an investor would hold positions in the hope of matching a trade in a distant future. While Obadia bought shares and soon after sold them in some instances, Lemaire said that on “big trades,” the investor acquired the shares weeks or months before offloading them, exposing himself to huge risks.
“Who can honestly suggest that someone -- me, people at Dexia or Marc-Albert Obadia -- could know at the time of his purchase that in a month there will be another buy order from Dexia?” Lemaire asked. “It’s impossible to know the price, volume or even direction of a fund’s buy order a month ahead. Someone who thinks it’s possible surely has never worked on the markets.”