Paris Prosecutors Get EADS Insider Probe Report
European aerospace group EADS and its shareholders were engulfed in a deepening controversy on Wednesday as the prosecutor's office confirmed it had received a report on insider share trading from French regulators.
The report follows a year-long enquiry into the allegations of insider trading at the owner of planemaker Airbus, after delays to its prestigious A380 superjumbo sliced 26% off its value weeks after managers and top shareholders sold shares.
Contents of the AMF stock market regulator's report were not disclosed, but a judicial source said it cited dealings by 21 top current and former executives at EADS and Airbus.
It also cited the group's two main industrial shareholders Lagardere and DaimlerChrysler, the source said, confirming details first reported in daily Le Figaro.
The report speaks of "concurrent and massive" sales between November 2005 and March 2006 involving around 1,200 people and entities including the 21 top people listed, the source said.
However, it makes no formal conclusion about whether the people listed engaged in insider trading, the source added.
Prosecutors have transmitted the report to an investigating judge responsible for examining whether charges should be brought as part of a legal investigation into allegations of insider trading which opened in November 2006.
French media company Lagardere, which represents French interests in Franco-German-led EADS, denied any wrongdoing.
"The group reaffirms vigorously that the procedure has been transparent and that, as far as we are concerned, there is no insider dealing in this affair," the company was quoted by Le Monde as saying. Lagardere Group has a stake in Le Monde.
A Lagardere spokesman confirmed the remarks.
The other main industrial shareholder in EADS, German car firm DaimlerChrysler, and EADS itself declined comment.
EADS has been dogged by insider trading allegations since the company plunged into an industrial and financial crisis over delays to the world's largest airliner, the A380, in 2006.
A number of executives including former co-Chief Executive Noel Forgeard exercised their right to sell stock options in March 2006 but the deals fell under the spotlight when Airbus announced serious A380 production difficulties in June.
Forgeard and other EADS executive committee members who sold shares have denied knowing anything about the extent of the A380 difficulties when they took their decisions to sell.
In April 2006, Lagardere and DaimlerChrysler jointly announced their decision to sell 7.5% each of EADS as part of a strategic decision to lower their exposure in a move which had been cleared previously by the French government.
The government owns 15% of EADS, with Lagardere now controlling 7.5% and DaimlerChrysler 22.5% in order to preserve a Franco-German balance in the group.
EADS has been bracing for months for more turbulence over the ongoing AMF enquiry, but the breadth of the list of people targeted -- about half of them still employed -- cast a new shadow over the group just as it struggles to right itself.
The Le Figaro report appeared a year to the day after Airbus announced a sweeping restructuring plan including factory sales and 10,000 job cuts. The company has also been hit by a weak dollar and design delays to its next major project, the A350.
Chief Executive Louis Gallois was mobbed by reporters at a meeting with French foreign policy IFRI to talk about Franco-German relations inside EADS, which many blame for the breakdown in trust which ultimately led to the A380 timebomb.
Gallois declined to comment on the AMF report but wearily acknowledged the fresh distraction from EADS recovery plans.
"I would rather be talking about the successes we have had like selling the A380 to British Airways (on Monday)," he said.
Airbus is preparing lavish celebrations for the delivery of the first A380 to Singapore Airlines on Oct. 15, 18 months late.
In the stock market, Lagardere shares fell more than 6% on fears that the accusations, if proved, could force the company to recover shares it sold last year. Lagardere said it was pondering legal action to reverse any damage.
EADS shares held relatively stable, falling 1.3%, as investors concluded the affair would not hit its restructuring.
"This should not have a financial impact on EADS. But for Lagardere, the risk is that the Caisse des Depots (CDC) asks for the deal to be cancelled," one Paris-based analyst said.
Insider trading in France carries a maximum fine of 1.5 million euros or up to 10 times the profit gained and two years in prison, said Paul Bishop, senior partner at Winston & Strawn.
Lagardere and DaimlerChrysler announced the sale of 61 million shares, or 7.5% of EADS, each on April 4, 2006. French state bank CDC pledged to buy some of Lagardere's shares.
The Lagardere transaction was handled via a mandatory exchangeable bond with a reference price of 32.6 euros, making the shares worth 663 million euros more than they are now.
EADS shares stood at 21.73 euros on Wednesday.
The AMF said in a statement the people involved in its enquiries had yet been given a chance to defend themselves. It said it would complete its investigations in 2008.