France: Insider Trading: The Court of Cassation's Judgment on what Qualifies as ‘Privileged Information’

Pages85-88
DOIhttps://doi.org/10.1108/eb025761
Publication Date01 Mar 1996
AuthorDavid Peacock
SubjectAccounting & finance
Journal of Financial Crime — Vol. 4 No. 1 — International
France: Insider Trading: The Court of Cassation's
Judgment on what Qualifies as 'Privileged
Information'
David Peacock
The provisions of s. 10-1 of the ordinance of 28th
September, 1967, likewise those of EC directive
89/592 of 13th November, 1989, forbid persons
who,
in virtue of their profession or office, have
available to them 'privileged information' concern-
ing possible future changes in the price of a trans-
ferable security from carrying out dealings in the
market before this knowledge becomes public:
such information must be precise, confidential, of
a kind to influence the price of the security and
give rise to the transactions effected. In
a
judgment
of 26th June, 1995 the Court of Cassation, quash-
ing the Court of Appeal's ruling, held that the
privileged character of the information within the
meaning of the texts could not depend on the
analysis that the person receiving and using it
could make, but that this character must be deter-
mined objectively, excluding any arbitrariness, and
in relation to its content alone.
The facts of this case are that during during
November 1988 the Banque de l'Union Europé-
enne (BUE) made an enormous purchase of the
shares of the company la Ruche Méridionale
(LRM) which was quoted on the Bordeaux
exchange, this being before the making on 28th
December, 1988 of a take-over bid by the com-
pany Rallye and on 9th January, 1989 of
a
counter-
bid from the Compagnie Française de l'Afrique
occidentale (CFAO). With the transfer of its stock
to CFAO, BUE derived a profit of FF93,835,374
from this operation. The COB, the equivalent of
the Securities and Exchange Commission, lodged a
complaint and two managers of BUE, Paul Alibert
and Sidney Cabessa, were prosecuted for insider
trading under s. 10-1 of the 1967 ordinance.
In holding the accused guilty of this charge the
Court of Appeal held that the managers knew of
the interest of Rallye and CFAO in LRM and of
their wish to acquire a significant share in its capi-
tal at the time they bought for their own account a
block of LRM stock that a client had requested be
sold discreetly and had proceeded to make further
purchases on the market. This knowledge derived
from their special acquaintance with the major dis-
tribution sector and their frequent contacts with
the undertakings concerned. The Court of Appeal
judges added, rejecting the defence plea based on
the uncertainty and imprecision of the information
in issue, that the privileged character of the infor-
mation should be determined according to the
degree of knowledge of the person receiving it and
that in this case the few bits of information
gathered by the accused could, taking into account
their perfect knowledge of the subject, immedia-
tely be put to use. The Court of Cassation quashed
this judgment in the following terms:
'But whereas, as these assertions stand, and
whence it follows that the incriminated spec-
ulative dealing resulted merely from financial
estimates made over a long period, which were
based on facts and circumstances known in the
professional environment, the Court of Appeal
could not, without violating the statute, declare
that the offence of insider trading was estab-
lished, whose statutory elements were not
found; hence, the judgment is quashed.'
It must now be considered what sort of privileged
information is a constituent element of insider
trading in the light of this judgment. The review
of this case in La
Semaine Juridique
makes twelve
points:
1.
For a long time it has not been possible to
foresee precisely the application of the law here
and, because of the imprecision of the texts, there
has been a sort of divination. This decision of the
Court of Cassation, considered important by the
COB,
by trying to reduce the subjective element
implied in the prerequisites of guilt for the
offence, has once again allowed jurists to predict
accurately what should be the outcome of such
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