Last Thursday, the French AMF imposed a record €14m fine on trader Joseph Raad for engaging in market abuse, alleging that he used non-public information sourced from a cousin to make €6.2m in 2008 by trading in the shares and options of logistics company Geodis. The AMF claims that Charles Rosier, a banker, tipped Raad off about an impending transaction that involved French state railway SNCF bidding for Geodis, and that Raad bought Geodis shares and options worth €8m in the fortnight leading up to the announcement of the bid. The watchdog has fined Rosier €400,000.

The case is interesting because neither Raad nor Rosier admitted receiving inside information; the AMF accordingly proceeded to build a circumstantial case, drawing on coincidences of timing and business dealings between the two men, and obtaining information from regulators in other jurisdictions to refute the defence case.

Rosier’s access to inside information:

During the initial investigation, Rosier had made various statements about not having access to inside information which were later contradicted by various email exchanges. He had just arrived in Seville (unbeknownst to his management) for a family holiday when an email containing a ‘Call Report for SNCF’ (containing inside information) arrived in his inbox. He had claimed not to have been reading his emails, but 5 days later (while still on holiday) responded to a query from a colleague about a possible financing in relation to the deal saying that he had spoken to the “chairman” of the bank, who had said there was no financing angle.

The bank’s vice chairman had been told by SNCF that the bank would be mandated on the transaction and that there was no financing angle on 17 March; in an email exchange, he agreed to meet Rosier on 19 March (prior to his departure for Seville). The vice chairman didn’t recall that meeting with Rosier but said it was not impossible that he could have mentioned the deal and the mandate.

Raad’s receipt and use of inside information:

There was no direct evidence of Rosier passing information to Raad – recorded lines were not used, and there seems to have been considerable delay in the investigation and thus a paucity of records.

Rosier and Raad were first cousins and had previously had business (property investment) dealings together which had netted them significant profits. Raad had used the joint account containing part of those profits to finance his trading in Geodis.

During the investigation, Raad claimed to have tried to trade in Geodis some months prior to the period within which inside information was available, through a Lebanese broker (which placed trades through now defunct brokers GDI Markets and London International Bank who in turn passed orders to Saxo Bank, and to IG Index through Dresdner respectively) but that the orders had not been executed.

The AMF made information requests of the Danish FSA and the UK FCA in April 2013, who in turn addressed requests to Saxo Bank and to IG Index and Dresdner, and then a further request of the Bank of Lebanon. Saxo and IG Index confirmed that they had received no such orders.

The AMF’s Decision Notice also makes some play of the fact that the transactions were atypical trading for Raad, representing some 870% of the average daily volume of transactions in Geodis shares, a relative illiquid stock, and that he would have had difficulty extricating himself from the position without creating a disorderly market – this analysis is directed at confirming his knowledge and misuse of inside information rather than at any allegation of manipulation.