Analyst Who Made $39,000 in an Hour Fined for Insider Trading

(Bloomberg) -- A former equity analyst who made more than 34,000 euros ($39,000) in an hour by investing in Vallourec SA just before he raised his own rating on the French company had his fine doubled by an appeals court.

Ex-Kepler Cheuvreux SA analyst Geoffroy Stern will have to pay an extra 100,000 euros after France’s highest administrative court ruled that a lower jurisdiction erred in its ruling. The court found that he benefited from insider information when making trades based on draft recommendations written by him and others that the brokerage was set to publish hours later.

The Conseil d’Etat said the share prices reacted “distinctly” following the publication of the 28 memos -- each of which was either the first recommendation for the security or reversed prior analyst investment advice. The administrative court increased his penalty to 200,000 euros from 100,000 euros as a result.

The enforcement committee of France’s markets regulator had cleared him of the insider-trading charge two years ago but fined and banned Stern for 10 years for failing to disclose the investment to his readers. In a rare move, the investigative arm of the Autorite des Marches Financiers chose to appeal the 2017 decision.

Authorities globally have cracked down on insider trading in the last decade. In France, the AMF -- which treats the offense as a civil violation -- brought cases against all sorts of market participants, from two Julius Baer Group Ltd. bankers accused last month of insider dealings to a potato seller who passed on a tip he says he got from an overheard conversation at a railway station. And Stern isn’t the only analyst to have faced accusations: A former Standard & Poor’s analyst was fined after he admitted he used his mother’s bank account to place three insider trades.

Stern’s hearings prompted disagreements between investigators and the authorities about how to proceed, leading to the appeal.

In its Stern ruling, the Conseil d’Etat considered that yet-unpublished analyst memos can be viewed as insider information, “in particular if they are meant for an imminent publication that is expected by the market and when they reveal a recommendation that is either issued for the first time or that modifies those previously issued.”

A lawyer for Stern and representatives at the AMF didn’t immediately respond to a request for comment.

During the 2017 AMF hearing, an official speaking on behalf of investigators said that in addition to the quick return on Vallourec, Stern made more than 16,000 euros in 37 minutes on Lagardere SCA shares. Stern’s knowledge of the analysts ratings and when they would be published gave him a clear insider advantage, the official said.

That failed to convince the AMF enforcement committee in 2017, which underscored investigator’s failure to produce evidence about Kepler’s standing in relation to the relevant securities and the reputation of those that wrote the recommendations. The committee also said the case also didn’t make clear whether the memos went to an audience wider than subscribers, limiting the understanding of their market impact.

Overall, Stern made about 105,000 euros through the trades after taking into account hedging costs, brokerage fees and taxes, one of his lawyers said at the time. For each of the 28 trades, he used contracts for difference, a type of derivative that amplified wagers on share movements with a small down payment.

Stern was fired by Kepler in 2014 in the wake of the AMF investigation. He moved to a consulting firm specializing in satellite communications and then founded an advisory firm focusing on the energy, aerospace and telecoms sectors, according to his LinkedIn profile.

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