Paris - A former equity analyst made more than 34 000
euros ($37 000) in an hour investing in Vallourec 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 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, according to Benjamin Mauduit, a member of the
regulator’s board.
Lucien Millou, another AMF official, said that 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.
Bounce back
“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.
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, the AMF official said.
“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.
Read also: Citibank agrees to fine for rigging rand
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
or Morgan Stanley.
‘Far cry’
Fricaudet said her client’s behaviour 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 added 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.
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