How One Bet on GE Deal Reaped $23 Million and a Criminal Probe

(Bloomberg) -- French investigators suspect an investor illegally made 20 million euros ($23 million) from just one bet after getting a tip-off in 2014 about General Electric Co.’s plan to buy part of Alstom SA.

The transaction -- using derivatives -- is one of several possible instances of insider-trading involving 38-year-old Frenchman Alexis Kuperfis that are under examination by criminal investigators, according to details contained in a ruling by the nation’s top court last month.

How One Bet on GE Deal Reaped $23 Million and a Criminal Probe

While the Alstom bet was the biggest win over a nine-month period, the previously unreported ruling reveals that French investigators also have suspicions concerning nearly 4 million euros that they say Kuperfis made during that time through trading on four other securities, including French cement company Lafarge SA.

The top court ruling provides a window into a sprawling French insider-trading investigation involving numerous other people and securities. Overall, the wider criminal probe is looking at suspicious trading over several years in more than ten stocks -- from Natixis SA to telecom operator Bouygues SA.

Air Liquide

About half a dozen men, including Kuperfis, have already been charged so far in relation to just one part, focusing on insider trading ahead of Air Liquide SA’s $13.2 billion takeover of Airgas Inc., according to two people familiar with the matter, who spoke on condition of anonymity.

There is little publicly available information about Kuperfis apart from the fact that he was a Swiss resident when he sued unsuccessfully to protest evidence-gathering raids targeting him.

Loic Henriot, a lawyer for the Frenchman, said his client hasn’t been accused of any wrongdoing over the GE-Alstom deal, which was eventually approved by EU and U.S. merger regulators in September 2015. Neither GE nor Alstom are mentioned as having any involvement in the suspected wrongdoing.

In France, investigative magistrates can decide to charge companies or individuals in a procedure known as “mise en examen” when there is “serious and consistent” evidence showing likely involvement in the matter under investigation. They can then decide whether to refer a case to trial, but aren’t involved after that stage.

Last month’s ruling gives details of how investigators requested the raids after determining that a wealth manager acting for Kuperfis had gradually started building Alstom positions on his behalf three weeks before press reports of GE’s plan to acquire the French firm’s energy business came out late on April 23, 2014. Alstom shares jumped the most in a decade the day after the news broke and Kuperfis, they say, was able to profit shortly after.

‘Huge’ Profit

Alexandre Bisch, a lawyer at Debevoise & Plimpton in Paris who isn’t involved in the Kuperfis case, said the supposed profit he would have made is “huge” yet should be taken with caution as it represents investigators’ view and such figures tend to decline once the defense wades in.

“It’s not something you see every day,” Bisch said in a phone interview, adding that he’s never heard of any French insider trading case with such large profits. “It probably explains the involvement of criminal authorities.”

Insider trading is typically dealt with as a civil violation by France’s financial markets regulator -- the Autorite des Marches Financiers -- but criminal investigators have become more active in hunting for financial crimes in recent years and are meant to take over complex cases that concern large sums of money. France’s financial prosecutor, known as the Parquet National Financier, declined to comment.

‘Serious and Consistent’

To track down possible insider-trading culprits, criminal investigators have wiretapped suspects and conducted surprise inspections at premises throughout the French territory -- from upscale ski resorts to fancy districts of Paris.

It was the AMF’s involvement -- even as a criminal investigation was ongoing -- that led to the Kuperfis case being examined by top court judges, and for the otherwise confidential details to emerge.

Kuperfis claimed in his Cour de Cassation lawsuit that an AMF raid in December 2014 on the Paris apartment of Thierry Braha -- his Stokors SA wealth manager -- should be voided because Kuperfis was already being probed over the same facts by criminal authorities.

Seized Documents

The civil investigators seized documents and data from phones and computers owned by Kuperfis, who was staying at the flat in the upscale 16th arrondissement, according to the Cour de Cassation.

Kuperfis’s double-jeopardy arguments were rejected. His lawyer told Bloomberg that his client intends to appeal the top court’s decision on the raids to the European Court of Human Rights in Strasbourg. A lawyer for Braha declined to comment on his client’s behalf and on behalf of Stokors.

Bisch says that the position taken by top court judges is “quite strict from a legal perspective but makes perfect sense and is not disproportionate.”

“It will enable the AMF to continue conducting introductory investigative measures alongside potential criminal probes before deciding whether the administrative or the criminal case should take precedence,” the Debevoise lawyer said.

The Cour de Cassation ruling summarizes the similarities between Kuperfis’s five winning bets over a nine-month period, which caught the attention of French investigators and led them to request the raid.

Massive Positions

For each of the five transactions, his wealth manager built up massive positions using so-called contracts for difference just a few days ahead of merger announcements or corporate profit warnings and then settled them at a profit either the very same day the news came out or just a few days after, according to the top court verdict. CFDs are derivatives that amplify wagers on share movements with a relatively small down payment.

“The choice of a highly leveraged financial instrument, the large quantities bought, the very opportune timing of the transactions as well as the repetition of the operations during a short period of time” convey “an objectively suspect nature to the transactions,” the AMF said when requesting the raids, according to the Cour de Cassation ruling.

Criminal Authorities

France’s AMF declined to comment on the ruling or say whether it had suspended its own investigations to let criminal authorities take the lead.

Also among those charged over the Air Liquide trading is Braha, co-founder of Geneva-based Stokors, as well as Stephane Fima, formerly a managing director who specialized in acquisition financing at Societe Generale SA.

Fima was fired in 2016 after SocGen said it discovered he accessed confidential information about the Air Liquide deal and then disclosed it to a third party in exchange for a payment. A lawyer for Fima declined to comment on the status of the criminal case. Braha has previously denied involvement in any wrongdoing in this case.

While Kuperfis lost his latest court bid, he had some success last year in another related attempt to place limits on the AMF’s investigative powers.

He won a lawsuit to curb the Autorite des Marches Financiers’ access to phone records during civil market-offense probes after judges criticized lawmakers for failing to include privacy-right safeguards for suspects.

During the hearing in that case, a Geneva financier’s lawyer divulged that his client, Lucien Selce, faced insider charges in a parallel criminal case into trading of CGG SA shares.

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