Extract taken from 'The Securities Ligation Review – edition 5'
Public enforcementi Forms of action
The AMF has broad powers to supervise the stock markets and to investigate any related suspicious activities. Based on its findings, it may enjoin the relevant person from violating applicable laws and regulations. In the context of market abuse, however, the most common form of action is for the AMF to intervene after the fact by initiating a sanction procedure, as further described below.
For years, the same persons could be fined by the stock market regulator (currently the AMF) and also be convicted for the same facts by the Paris Criminal Court. However, under the influence of previous decisions of the European Court of Human Rights (ECtHR) of 10 February 2009 and 4 March 2014, the French Constitutional Court ruled on 18 March 2015 that double public enforcement of insider-trading laws against the same person for the same facts was unconstitutional.
After several consultations on this topic, the French Parliament thus amended the law in 2016 so as to avoid double public enforcement of market abuse laws against the same person for the same facts. Since then, the AMF has been entitled to pursue a market abuse case only if the Public Prosecutor for Financial Matters does not, and vice versa. In the event of disagreement between them, the Public Prosecutor of the Paris Court of Appeal has full discretion to attribute the case to either one or the other.
Even though a clear improvement, the mechanism raises some questions regarding its application. The law sets no criteria as to which cases should be attributed to the AMF or the Public Prosecutor for Financial Matters. This process does not involve the defendant and does not allow for any appeal or challenge, which is a questionable oversight according to several scholars.
The choice between administrative enforcement and criminal prosecution can have significant consequences for the defendant, who faces up to five years' imprisonment only before the Paris Criminal Court. Therefore, this mechanism has been criticised and may in the future be challenged on the basis of constitutional or international law arguments. It could be argued, for example, that it does not comply with the requirement of equal treatment or the principle of legality of criminal offences and penalties (which imposes the predictability of the law). Indeed, the ECtHR states that when the criteria are not objective and defined there is an infringement of these principles.ii Procedure
Investigations of any matter within the AMF's jurisdiction are initiated by the AMF's secretary general. The appointed investigators have extensive powers: they can request the communication of any relevant document including phone usage data, convene all relevant persons for interview, access professional premises and conduct interviews on site. If authorised by a judiciary order, they may access non-professional premises on which they can conduct interviews and they can seize relevant documents on any premises. By the end of their investigation, the AMF sends a draft report and a draft statement of objections, on which the investigated parties then have one month to provide comments. Based on these comments and the final investigation report, the AMF Board decides whether to initiate a sanction procedure.
If a sanction procedure is initiated, the AMF Board sends to respondents a statement of objections, on which they have two months to comment. The Board also transfers the file to the AMF Enforcement Committee, which appoints one of its members as rapporteur. The rapporteur will review the case, conduct further investigation, if needed, and opine on the merits of the objections in a report, on which respondents have 15 days to comment. After a hearing during which the rapporteur, a representative of the AMF Board and the respondents will present their oral arguments, the AMF Enforcement Committee will rule on the case.
Its decision may be appealed before the Paris Court of Appeal or the French Administrative Supreme Court, depending on whether or not the respondents are professionals of the finance industry working under the AMF's supervision. The ruling of the Paris Court of Appeal may be appealed before the Supreme Court. The whole proceeding before the AMF (including the investigation phase) lasts for between two and four years. Each appeal takes 18–24 months.
As for the Public Prosecutor for Financial Matters, it has full discretion to initiate a preliminary investigation and to transmit the file to an investigating magistrate. Both the Prosecutor and the investigating magistrate have the same powers as in any criminal case, including access to premises, seizure of documents and conduct of interviews. If the investigating magistrate considers that there is enough evidence, he or she will refer the prosecuted parties for trial before the Paris Criminal Court. At the hearing, the Court will conduct a full review of the case, possibly involving experts and fact witnesses.
The three-year statute of limitations for infringements investigated by the AMF will be harmonised in the coming months with the six-year statute of limitations applicable in criminal matters.
As opposed to the AMF sanction procedure, the criminal prosecution allows victims of the offence to take part in the process. They have access to the file as soon as an investigating judge is appointed with a right to require additional investigation and to challenge the investigating magistrate's decisions. In the event of trial, the victims will participate in the trial and be entitled to submit written as well as oral pleadings.iii Settlements
Until recently, only disciplinary proceedings (i.e., involving financial industry professionals) could be settled with the AMF. Law No. 2016-819 of 21 June 2016 has extended the scope of the AMF settlement procedure to all infringements falling within the AMF's jurisdiction, such as the breach by issuers or shareholders of transparency requirements and market abuse (see Section V).
Even if settlement of criminal cases is theoretically possible under French law, it remains exceptional in practice. A settlement with the victims of the offence is always possible; however, it will only deal with civil damages and avoid any further involvement of the victims. Such a settlement will not prevent the prosecution from being continued, and the trial from being held, if the Public Prosecutor or the investigating judge deems it appropriate.iv Sentencing and liability
The AMF is entitled to impose financial penalties of up to the higher of: (1) €100 million, (2) 10 times the profit resulting from the infringement, or (3) 15 per cent of the defendant's consolidated turnover (if applicable). It may also impose other types of sanctions (such as a warning or a prohibition on conducting certain businesses) on the professionals of the financial industry acting under its supervision. The amount of the fine is based on (inter alia) the seriousness of the infringement and the advantages obtained or profits gained by the infringing party. The decision is made public, unless its publication may significantly disturb the financial markets or harm the infringing parties in which case it may be anonymised.
The Paris Criminal Court can impose fines of at least the amount of the profit resulting from the offence (if any) and up to the higher of: (1) €100 million; (2) 10 times the profit resulting from the infringement; or (3) 15 per cent of the defendant's consolidated turnover (if applicable), and imprisonment for up to five years. This applies to insider trading as well as market manipulation.