French regulators recommended on Tuesday that executives at Airbus and parent EADS face insider trading penalties or charges linked to costly delays of the A380 superjumbo and said the company had misled markets.
Winding up an 18-month probe, market regulator AMF said it would hand its evidence to its own sanctions committee and to public prosecutors who will be able to grill senior EADS officials separately over events stretching back to 2005.
EADS defended its record of transparency and vowed to support its managers but warned the probe could have "significant consequences on its image and reputation."
The probe has threatened to reopen chronic management and political battles surrounding Europe's largest aerospace group and overshadows efforts to penetrate the U.S. defence market.
The investigation was triggered by worsening delays to production of the A380 superjumbo, which sliced a quarter off EADS stock in June 2006.
Top shareholders Lagardere and Daimler and several managers sold shares but all deny doing so with the knowledge that the schedule for the world's largest aircraft was unravelling due to a simple software clash between French and German plants.
Former EADS co-chairman Arnaud Lagardere said after the delays he would rather be thought of as "incompetent instead of dishonest" for not knowing what was happening in Airbus plants.
Sources familiar with the matter said Arnaud Lagardere and Daimler's Manfred Bischoff had been cleared by the AMF.
But their companies would be questioned on whether they neglected responsibilities on the handling of unpublished information.
EADS declined comment on a report that 17 of its own executives had been targeted for insider trading.
The company itself is being pursued for poor communication to the markets.
The AMF said the probe had taken it back through company statements issued as long ago as May 2005, earlier than thought.
That covers the appointment of Frenchman Noel Forgeard and Tom Enders of Germany as co-chief executives of EADS, a period of Franco-German in-fighting that was partly blamed for the A380 debacle and ultimately contributed to Forgeard's downfall.
Enders now runs Airbus. Both men have denied breaking rules.
The AMF said suspects would be notified of the grievances against them in coming days.
Its sanctions panel will let them respond to claims before deciding whether to seek penalties.
The AMF said it had also decided to hand its findings "without delay" to Paris prosecutors.
"At last, EADS and its managers concerned will be in a position to defend themselves," EADS Chief Executive Louis Gallois said in a statement. "EADS will support its managers in their defense. It intends to demonstrate that it has applied standards of excellence when communicating to the market and has acted with full transparency."
EADS shares fell in early trading, but closed 4.9 percent higher at 15.75 euros.
The company said it did not expect a material financial impact but warned the next steps could drag on.
Traders said the leak of a draft text last year had already prepared markets for the news.
French media firm Lagardere said the AMF had made no accusation against the group relating to the A380 delays.
But it said it could be challenged over a discrepancy between analysts' forecasts and internal operating targets as well as delays in announcing a redesign of another jet, the A350.
"The group is confident of its ability to provide all explanations needed to clear it," Lagardere said in a statement.
Daimler reiterated it had not traded on inside information.
During the A350 design phase, analysts and EADS disagreed over whether the euro would rise to $1.20 or $1.30.
Both were severe underestimates and the company is now badly squeezed by a plunge in the value of the dollar to almost $1.60 per euro.
The AMF's most extensive investigation to date is seen as a test both of the regulator's powers and credibility and of the stability of EADS, frequently rocked by management disputes.
Power at the company, founded in 2000, was originally shared between French and German executives in a testy dual management structure that Paris and Berlin abolished at a summit last July.
Gallois said in a newspaper interview last week that the inquiry could have "serious consequences" for EADS.
EADS is battling to keep a restructuring plan on track in the face of a weak dollar and recently won a $35 billion deal to supply mid-air refuelling planes to the U.S. Air Force.
Rival Boeing and its backers in Congress are questioning the validity of the contract and are likely to leap on anything implying shady dealings at EADS, after an earlier contract to Boeing was cancelled in a corruption scandal.
An earlier AMF draft report was leaked last year and found evidence of "massive" trading in EADS stock by people involved in the company as production problems on the A380 unfolded.
The plane entered service last year about two years late.