The decision discussed here provides several useful clarifications concerning the scope of the AMF Enforcement Committee’s enforcement jurisdiction, insider dealing infringements and the dissemination of inaccurate, imprecise or misleading information. Having clarified the basis for its action, the Committee considers the assessment of an insider dealing infringement potentially committed by an issuer under a share buyback programme. It also holds that optional information supplied voluntarily may constitute the dissemination of inaccurate, imprecise or misleading information.
1. Generally, no insider is better informed than the issuer itself. The AMF Enforcement Committee’s decision discussed here provides a telling illustration. In this case, Cibox Interactive, a company specialising in the design and marketing of computer peripherals, issued a press release on 31 July 2014 announcing revenue of 3 591 000 € and a net loss of 340 000 €. In a corrective press release published on 14 November 2014, the company stated that this net loss should be reduced to -129 000 €. That release also announced the launch of a new range of products manufactured by a partner, although the partnership was ultimately never concluded. Alongside these fluctuations in the information published by the issuer, several significant changes in its share ownership occurred during the same year. In January 2014, its longstanding shareholder sold its stake, following which its chairman and chief executive officer and a senior executive substantially increased their holdings, ultimately holding 6,47 % and 10,3 % of the share capital respectively. In September 2014, a third party, AI Investment, notified the crossing of the 5 % shareholding threshold. The following year, the company carried out 22 transactions in its own securities, with the result that, on 30 July 2015, it held 13,45 % of its own share capital.
2. These various developments inevitably attracted the AMF’s attention. Following an investigation, it alleged multiple infringements against AI Investment and Cibox, its chairman and its executive: inadequate market disclosures; insider dealing; failures to report the issuer’s transactions in its own securities; and failures by executives to report their transactions or shareholding threshold crossings… The decision delivered against them by the Enforcement Committee on 5 July 2018 is too lengthy and detailed for us to examine every legal aspect. The securities enforcement body addresses several interesting questions that it had already decided previously (application of the provisions of the MAR [1] on the dissemination of information to conduct predating its entry into force [2]; non-retroactivity of Article 12.4 of the MAR Regulation concerning the attribution to a legal entity of an infringement committed by the natural person managing it [3]). Without returning to these issues, either because they are well established or because the infringements identified in this case were incidental, we note that the Enforcement Committee sanctioned Cibox for disseminating inaccurate information: both for communicating erroneous results on 31 July 2014 and for disseminating, in its press release of 14 November 2014, information concerning a partnership that was ultimately never concluded, and lastly for the incomplete information on the issuer’s transactions in its own securities published in its financial report for 2015. The company’s chairman and chief executive officer and its other executive were sanctioned for breaching their obligations to notify shareholding threshold crossings when acquiring the issuer’s securities. This prompted the Enforcement Committee to reiterate that the infringement is objective, thus excluding any debate concerning whether the sanctioned conduct was intentional.
3. The decision nevertheless warrants attention for several other issues it resolves. First, the Committee clarified the scope of its jurisdiction over an issuer’s breach of its disclosure obligations concerning share buybacks (I). It then examined the delicate relationship between such buybacks by an issuer and any inside information it might possess (II). Finally, it provided an interesting clarification concerning the nature of the inaccurate, imprecise or misleading information capable of constituting the corresponding infringement in a shareholding threshold notification (III).
_ I – Breach of disclosure obligations concerning share buyback programmes: the Enforcement Committee’s jurisdiction is limited to infringements capable of “harming investor protection or the proper functioning of the market”
4. The allegations notified to Cibox included a breach of the provisions governing share buyback programmes and their implementation, laid down in Articles L. 451-3 of the Monetary and Financial Code, L. 225-209 et seq. of the Commercial Code and 241-1 to 241-4 of the AMF General Regulation in force at the material time. In response to the issuer’s objection to its jurisdiction, the AMF Enforcement Committee examined the scope of its powers (A), limiting its enforcement action to breaches of disclosure obligations “capable of harming investor protection or the proper functioning of the market” (B).
__A – Investor protection and the proper functioning of the market as the basis for the Committee’s power to impose sanctions
5. The AMF Enforcement Committee’s subject-matter jurisdiction precisely mirrors that of the AMF Board in exercising its powers under Articles L. 621-14, II, paragraph 1, and L. 621-15 of the Monetary and Financial Code. The Board alone has the power to refer a matter to the Enforcement Committee by notifying allegations to the persons concerned. Both the Board and the Enforcement Committee have jurisdiction over the infringements listed in those provisions: the former to bring them to an end or pursue proceedings, and the latter to impose sanctions. Alongside categories of rules with a defined subject matter (rules from various sources governing insider dealing, market manipulation and unlawful disclosure of inside information), Article L. 621-14, II, first paragraph, sets out a residual category covering “any other infringement capable of harming investor protection or the proper functioning of markets”. Article L. 621-15, II, which defines the infringements for which the Enforcement Committee may punish those responsible, repeatedly refers to this residual category of infringements under Article L. 621-14, II, paragraph 1. Such a reference to a broad category of infringements defined in highly abstract terms did not prevent the Constitutional Council from holding that Articles L. 621-14 and L. 621-15 define the infringement in sufficiently precise terms compatible with the principle that offences and penalties must be prescribed by law.
The decision discussed here provides an interesting illustration of the application of this residual category of infringements. It assesses the issuer’s breaches of company law rules against the two legally protected interests of investor protection and the proper functioning of markets, to determine whether they fall within its enforcement powers.
6. The AMF alleged, first, that Cibox had failed to comply with the rules governing share buyback programmes, notably by failing to obtain authorisation for a share buyback programme from the general meeting of shareholders, contrary to Article L. 225-209 of the Commercial Code; exceeding the 10 % limit on treasury securities, prohibited by Article L. 225-210 of the Commercial Code; and failing to resell or cancel the securities held above that limit, contrary to Article L. 225-214 of the Commercial Code. Second, the Board brought proceedings against Cibox for failing to inform the AMF and the market of those buybacks, in breach of Articles L. 225-212 of the Commercial Code, L. 451-3 of the Monetary and Financial Code and 241-1 to 241-4 of the AMF General Regulation in force at the material time. Neither category of rules falls within the rules governing insider dealing, price manipulation or the dissemination of false information. To establish its jurisdiction to sanction their breach, the Enforcement Committee therefore had to ascertain whether that breach was indeed an “infringement capable of harming investor protection [or] (…) the proper functioning of markets”.
In this respect, the Committee distinguished between these two categories of provisions by analysing the interests they protect. In its view, only the second category, which governs disclosure to the regulator and the market concerning the issuer’s buyback programme, seeks to protect investors and market integrity and therefore falls within its jurisdiction. By contrast, the Enforcement Committee considered that the Commercial Code rules governing the programme itself seek only to protect “the proper functioning of companies”, and accordingly found that it lacked jurisdiction to sanction their breach.
7. This ruling, which to our knowledge is unprecedented in relation to the substantive rules concerned, excludes the Committee’s jurisdiction over infringements under Articles L. 225-209 et seq. of the Commercial Code concerning solely the functioning of companies as such, shareholders’ interests or the integrity of the share capital.
8. The scope of this conclusion must nevertheless be qualified. As regards Article L. 225-209 of the Commercial Code, investor protection and the proper functioning of the market appear to be secured by the possibility of establishing a breach of Article L. 225-212 of that Code, which requires notification to the AMF of share buyback programmes undertaken under the aforementioned Article L. 225-209.
__B – Sanctioning failures to inform the AMF and the market under a share buyback programme
9. Having established its jurisdiction to examine potential breaches of Articles L. 225-212 of the Commercial Code, concerning the obligation to notify a share buyback programme to the AMF, L. 451-3 of the Monetary and Financial Code, concerning notification to the AMF of transactions in an issuer’s own securities, and 241-1 to 241-4 of the AMF General Regulation, concerning share buyback programmes, the Enforcement Committee sought to determine whether the infringements were established. As a preliminary matter, however, it examined whether provisions adopted after the conduct in question might apply because they were “more lenient”.
Following this preliminary examination, the Committee found that the wording of Article 241-1 of the AMF General Regulation in force since 18 December 2016 had narrowed the scope of the issuer’s obligation to inform the market after repurchasing its own securities: that obligation now applies only to transactions undertaken under a buyback programme satisfying the conditions of Article 5 of the MAR Regulation, “that is, those intended to benefit from the exemption from the prohibition of insider dealing provided for by that provision. Other transactions undertaken under a buyback programme are not prohibited, but remain subject to the prohibition of insider dealing”. The Committee therefore considered the amended provision more lenient in this respect and applied it retroactively.
10. In analysing the infringement, the Committee first summarised the situations envisaged by law for a share buyback programme undertaken by a company whose securities are admitted to trading on a regulated market. The first situation, provided for in Article L. 225-207 of the Commercial Code, concerns a capital reduction unrelated to losses, for the purpose of cancelling shares. The second falls under Article L. 225-208 of the Commercial Code and concerns share awards or the grant of share purchase options to employees. The third is that envisaged by the aforementioned Article L. 225-209, which seeks, in particular, to allow the price of the repurchased securities to be “supported”. In this case, the volume of shares that may be repurchased is limited both in terms of holdings and transaction flows.
Having ruled out the first two situations, the Committee concluded that the 26 transactions in its own securities for which Cibox faced allegations necessarily fell within Article L. 225-209 of the Commercial Code. The company did not dispute that these transactions had taken place without any notification to the AMF or the market. For example, no description of its buyback programme had been published. The Enforcement Committee therefore logically found the infringement established without further examination.
We now turn more specifically to the last transaction carried out by Cibox under its share buyback programme, which the Enforcement Committee held constituted a breach of the obligation to refrain from using inside information.
_ II – A company’s insider dealing infringement through transactions in its own securities
11. An issuer about to publish its half-year results unquestionably possesses inside information concerning its own securities. Accordingly, transactions by that company in its own securities outside the frameworks applicable to share buyback programmes that may afford it exemptions undoubtedly expose it to a risk of sanctions under the provisions prohibiting insider dealing.
This was the conduct alleged against Cibox: while preparing, on 31 July 2015, to publish its half-year financial results, which would show an improvement on its previous performance, it had, on 30 July 2015, purchased 99 800 of its own securities under its share buyback programme. The Committee therefore had to ascertain whether the company possessed inside information concerning itself and, if so, whether it had unlawfully breached its obligation to refrain from any transactions in its securities.
12. As a preliminary matter, the Committee examined the substance of the MAR provisions potentially applicable to the conduct before it, notably Articles 7, 8 and 15 concerning the definition of inside information, the definition of insider dealing and the prohibition of such dealing. These provisions were not, however, considered “more lenient” than Articles 621-1, 622-1 and 622-2 of the AMF General Regulation in force on 30 July 2015, the date of the disputed acquisition. The Committee therefore established the infringement under those latter provisions. Following its usual approach, the Enforcement Committee first sought to establish the existence of inside information (A), before analysing its possession and use (B).
__A – A listed company’s unpublished periodic financial results constitute inside information
13. By way of reminder, the Enforcement Committee had to assess whether the information was inside information within the meaning of Article L. 621-1 of the AMF General Regulation in force at the material time. Its first paragraph provided that “inside information is information of a precise nature which has not been made public, relating, directly or indirectly, to one or more issuers of financial instruments or to one or more financial instruments and which, if made public, would be likely to have a significant effect on the prices of those financial instruments or on the prices of related financial instruments”.
14. The non-public nature of the information, which the company did not dispute, presented no difficulty: the Committee’s settled case law holds that information held solely “internally” cannot be regarded as public. Similarly, the Committee has previously held that information concerning a substantial decline in revenue cannot be considered known to the public before publication of the press release announcing it.
15. As regards the requirement that the information be precise, the Committee noted that on 27 July 2015 the head of investor relations had emailed, among others, the chairman and chief executive officer a draft press release containing exactly the same information as that published on 31 July
Here again, consistently with its case law, the Committee concluded that the information was precise. It had previously considered this criterion satisfied by a forecast result before the accounts were finalised, provided that it was “possible to draw a conclusion as to its possible effect on the share price”. This analysis concerning revenue information was also upheld by the Court of Cassation. The Committee subsequently extended this reasoning, holding that it is immaterial that the results were merely provisional and unreliable where, for example, the figures show that the company cannot achieve the targets announced to the public.
16. Finally, as regards the information’s price sensitivity, the facts examined show that the issuer’s previous market disclosure, on 30 June 2015, highlighted a clear improvement on the first half of 2014, noting that this “had not happened for years”. The Committee inferred that the information concerning the results for the first half of 2015 was price-sensitive, since the results communicated on 31 July 2015 were likely to be used by a reasonable investor as one of the bases for an investment decision.
This conclusion is equally unsurprising, since the case law does not require any affirmative finding of an effect on the price. It is useful to recall here the principle laid down by the Court of Justice of the European Union under the Market Abuse Directive in its extensively discussed judgment in Spector Group : “in accordance with the purpose of Directive 2003/6, that capacity to have a significant effect on prices must be assessed in advance, in the light of the content of the information concerned and its context. It is therefore unnecessary, when determining whether information is inside information, to examine whether its disclosure actually had a significant effect on the price of the financial instruments to which it relates”.
The Enforcement Committee therefore logically held that the results Cibox was about to publish displayed all the characteristics of inside information.
__ B – The nature of the presumption of use of inside information in a company’s transaction in its own securities
17. The question of possession of inside information did not require extensive analysis by the Enforcement Committee. An email exchange on 27 July 2015 between Cibox’s head of investor relations, its legal representative and a third person whose only status was that of the company’s principal shareholder concerned the draft press release on the half-year results and demonstrated their knowledge of those results shortly before publication. The exchange thus established that those three persons knew the latest information concerning the company’s financial health, which constituted inside information (see above, § 16).
Having identified the persons possessing this information, the Committee then had to examine whether they had used it. It first noted that Cibox was a “primary insider by virtue of holding part of its own share capital”, referring to the categories of insiders listed in Article 622-2, paragraph 1, 2°, of the AMF General Regulation applicable at the material time. This status entails a well-established legal consequence, affirmed by the Court of Justice of the European Union in its previously mentioned Spector Group judgment: a primary insider possessing inside information concerning an issuer is presumed to use that information when trading in that issuer’s securities. In this case, the Committee therefore held that Cibox was presumed to have used inside information concerning its half-year results for 2015 when making the acquisition on 30 July 2015.
This conclusion follows the case law developed by the Committee and subsequently upheld by the Commercial Chamber of the Court of Cassation in its extensively discussed judgment of 29 March 2011: where an issuer possessing inside information undertakes a transaction under its buyback programme, an insider dealing infringement is established without any need to demonstrate that possession of the inside information determined the decision to make the repurchase concerned. This categorical statement leaves no room to rebut the presumption that inside information was used. Yet, in its judgment in Spector Group, the Court of Justice of the European Union accepted that a primary insider could demonstrate that it had not used the inside information it possessed when undertaking the transaction.
18. On this point, however, the Enforcement Committee in this case did not merely rely on the presumption of use of inside information to reject the company’s defence. It agreed to examine the company’s arguments that it had not used the inside information. This implicitly, but necessarily, acknowledges that the presumption of use is indeed rebuttable.
To demonstrate that it had not used the inside information it possessed, Cibox argued that the orders had actually been placed by the company’s principal shareholder, who, it asserted, “had not been authorised to undertake transactions in treasury shares”. Cibox also submitted that the principal shareholder, who received the access codes for the company account through which the disputed orders had been placed every day with the chairman and chief executive officer’s authorisation, had merely been informally entrusted with treasury management. It also referred to exchanges with the company’s chairman and chief executive officer, who had advised the principal shareholder against trading in Cibox securities. The company further argued that this shareholder, a secondary insider, had undertaken the transaction in accordance with his usual investment practices without using the inside information he possessed. It therefore maintained that it could not itself have used that information.
19. The Committee rejected these arguments. Having observed that the principal shareholder was neither an employee nor a corporate officer of Cibox, it established that the company had granted him a mandate with its chairman and chief executive officer’s knowledge. It then analysed the principal shareholder’s use of the information under Article 622-2, paragraph 2, of the AMF General Regulation applicable to secondary insiders, holding that he “knew or ought to have known that the information concerning Cibox’s half-year results communicated to him on 27 July 2015 constituted inside information”. It also rejected the argument based on the continuity and consistency between that shareholder’s previous transactions and the disputed transactions. Since he had used inside information when undertaking the transactions concerned under a mandate granted by Cibox, the company had indeed committed the insider dealing infringement.
Thus, although rebuttable, the presumption that the information was used was not rebutted in this case.
_III – Establishing the infringement of disseminating inaccurate, imprecise or misleading information in shareholding threshold notifications submitted to the AMF
20. We conclude with the final infringement, concerning AI Investment, which was accused of disseminating false information concerning Cibox in a notification to the AMF and the issuer of the crossing of a shareholding threshold in Cibox. The disputed information supplied by AI Investment concerned the date of the threshold crossing, its total holding in Cibox’s share capital and AI Investment’s identification of its controlling shareholder.
The facts before the Committee enabled it to clarify the elements of the infringement of disseminating inaccurate, imprecise or misleading information, both as regards the requirement that the information be disseminated to the public (A) and as regards whether the information was supplied voluntarily (B).
__A – The means of disseminating inaccurate, imprecise or misleading information
21. Having recalled that Articles 223-1 and 623-1 of the AMF General Regulation and Article 12.1.c) of the MAR Regulation had to be applied together to assess conduct predating the entry into force of that Regulation which might constitute an infringement of disseminating false, imprecise or misleading information, the Enforcement Committee examined the nature of the information supplied by AI Investment to satisfy its obligation to notify the AMF and the issuer of a shareholding threshold crossing under Articles L. 233-7 of the Commercial Code and 223-14 of the AMF General Regulation.
It is established that the channel through which erroneous information is disseminated is not a decisive element of this infringement, which may be committed “regardless of the medium used”. The Committee has nevertheless previously stated that the quality of the information disseminated must be assessed in relation to each communication medium.
22. In this case, the Enforcement Committee clarified that a person may disseminate information to the public indirectly through the AMF when the latter publishes the information supplied to it on its website. The person facing proceedings need not therefore have physically disseminated the information.
All information supplied to the AMF for subsequent publication must therefore satisfy the standards required of any securities market information communicated to the public and must, in particular, be neither false nor misleading.
__B – Establishing the infringement of disseminating inaccurate, imprecise or misleading information where optional information is supplied voluntarily
23. In this case, AI Investment did not dispute that the information it had supplied to the AMF concerning the date on which it crossed a shareholding threshold in Cibox, its total holding and the identity of AI Investment’s controlling shareholder was erroneous.
However, as regards the information supplied concerning its own control, AI Investment argued that Article L. 233-3 of the Commercial Code, in the version in force when the notification was made, required identification of the person “controlling at the highest level” the notifying company only by reference to legal entities. That section of the notification therefore did not have to be completed where the notifying party was controlled by a natural person, as was indeed the case for AI Investment.
24. The Committee nevertheless held that “since AI Investment voluntarily entered information in that section, it fell within Article 632-1 of the AMF General Regulation”. The optional and voluntary nature of the information supplied therefore has no bearing on whether an infringement may be established if that information is false or misleading. Nor does it matter that the communication resulted from an error, since “Article 632-1 of the General Regulation of the Autorité des marchés financiers does not require proof that the communication of information giving inaccurate, imprecise or misleading indications was intentional”.
Moreover, this approach is consistent with the Enforcement Committee’s reasoning when assessing its jurisdiction: if its function is to ensure “investor protection” and “the proper functioning of the market”, it is unsurprising that no consequence attaches to the optional and voluntary nature of the information supplied for dissemination, since safeguarding those two interests is all that matters here.
Footnotes
1 –
Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse, which entered into force on 3 July 2016.
2 –
See, for example: AMF, decision, 7 May 2018, No 5, SAN-2018-06, Montagne et Neige Développement and Mr X, p. 6: BJB July 2018, No 117r5, p. 210, case note by Sallé M.; AMF, decision, 2 November 2017, No 11, SAN-2017-09, Company X and Mr A.,
p. 5: BJB January 2018, No 117g5, p. 18, case note by Sallé M.
3 –
For another recent application, see: AMF, decision, 7 May 2018, No 5, SAN-2018-06, Montagne et Neige Développement and Mr X, p. 13.
4 –
We refer here to Article L. 621-14, II, paragraph 1, as worded at the material time. Law No 2016-1691 of 9 December 2016 supplemented it to include all breaches of the anti-money laundering obligations laid down in the Monetary and Financial Code.
5 –
See Monetary and Financial Code, Art. L. 621-15, II, c), 4°, or II, d), 4°, or II, e)..
6 –
Constitutional Council, 2 June 2017, No 2017-634 QPC: BJB July 2017, No 116×8, p. 262, case note by Gastebled. É and Keita B.
7 –
Order of 14 December 2016 approving amendments to the General Regulation of the Autorité des marchés financiers, NOR: ECFT1636300A.
8 –
For an analysis of the framework, see in particular Basdevant F., “Listed Issuers’ Repurchases of Their Own Shares: AMF Guide of 2 February 2017”, RTDF 2017/1, pp. 106 to 111.
9 –
Article 5 of the MAR Regulation provides, in particular, that repurchases undertaken within this framework benefit from an exemption from Articles 14 and 15 of the Regulation, concerning in particular the prohibition of insider dealing and market manipulation; see, for example, on this subject: AMF, “Guide to Listed Issuers’ Transactions in Their Own Securities and Stabilisation Measures”, 2 February 2017.
10 –
For a company sanctioned for an insider dealing infringement arising from transactions undertaken under its
buyback programme before the MAR Regulation, see: Court of Cassation, Commercial Chamber, 29 March 2011, No 10-15866.
11 –
AMF, decision, 1 March 2007, SAN-2007-12, p. 6: BJB February 2008, No 003, p. 27, case note by Moulin J.-M.
12 –
AMF, decision, 12 November 2009, SAN-2010-03, p. 5: BJB March 2010, No 016, p. 126, case note by Martin Laprade F.
13 –
AMF, decision, 23 July 2015, SAN-2015-15, Faiveley Transport, p. 8.
14 –
Court of Cassation, Commercial Chamber, 29 March 2011, No 10-15866.
15 –
AMF, decision, 3 March 2015, SAN-2015-04, Air France-KLM, p. 12: BJB May 2015, No 112k2, p. 212, case note by Martin Laprade F.
16 –
See, for example: Paris Court of Appeal, 28 January 2009, No 08/02002: BJB July 2009, No 039, p. 274, case note by Tieu O.-T- and Dezeuze E.
17 –
CJEU, 23 December 2009, No C-45/08, Spector Photo Group NV and Chris Van Raemdonck v Commissie voor het Bank-Financie-en Assurantiewezen (CBFA), § 69: BJB March 2010, No 012, p. 92, case note by Torck S.
18 –
CJEU, 23 December 2009, No C-45/08, cited above, § 54.
19 –
Court of Cassation, Commercial Chamber, 29 March 2011, cited above; Dezeuze E., Rev. sociétés 2011, p. 501; Menesson N., “Share Buyback Programmes and Insider Dealing Infringements”, JCP E 2011, 30-38 (concerning Court of Cassation, Commercial Chamber, 29 March 2011, No 10-15866, Vinci); Torck S., “The Objectivisation of Insider Dealing Infringements, Again and Again…”, Dr. sociétés 2011, commentary 136.
20 –
AMF General Regulation, former Art. 632-1.
21 –
AMF, decision, 2 November 2017, No 11, SAN-2017-09, Company X and Mr A., p. 7: BJB January 2018, No 117g5, p. 18
, case note by Sallé M.
22 –
Court of Cassation, Commercial Chamber, 18 November 2008, No 08-10246; Court of Cassation, Commercial Chamber, 15 June 2010, No 09-14968: Bull. civ. IV, No 11.