Elliott Hedge Fund Faces Fine in French Market Abuse Probe

(Bloomberg) --

Elliott Management Corp. was accused Friday by French regulators of misleading the market about its investment strategy in 2015 regarding a trucking company that XPO Logistics Inc. was planning to acquire. The hedge fund risks a 20 million-euro ($22 million) fine.

At the heart of the case are regulatory declarations Elliott made as it was building a derivatives position in Norbert Dentressangle, a transport company. French investigators say Elliott’s filings indicated it had acquired contracts for difference when it had actually bought equity swaps. The latter derivative might have hinted Elliott was planning to acquire a stake large enough to prevent it being forced to sell its shares, an official at the Autorite des Marches Financiers said.

Elliott -- which subsequently acquired about 9% of Norbert Dentressangle shares -- was also accused of failing to quickly flag its intention not to tender into XPO’s 2015 offer. The allegations were detailed Friday at a hearing of the AMF’s enforcement committee.

“Elliott knowingly tried to conceal its strategy,” said Audrey Micouleau, the AMF official who spoke on behalf of investigators. She accused Elliott of obstructing the probe and recommended a 15 million-euro fine for Elliott Advisors UK Ltd. and an additional penalty of 5 million euros for Elliott Capital Advisors LP in relation to the three alleged infringements.

Anne Le Lorier, another AMF official, disagreed with investigators on certain points, in particular concerning the impact of the CFD declarations. “There’s no evidence showing the market was misled,” Le Lorier said.

It’s the second time billionaire Paul Singer’s Elliott has faced an AMF probe. The hedge fund was fined 16 million euros by the regulator in 2014 for using nonpublic information in the 2010 purchase of shares of a toll-road company in France.

The AMF’s enforcement committee assesses market-abuse cases ranging from insider trading to publishing misleading information. It has the power to issue civil fines and bans and typically issues decisions several weeks after the hearings. Morgan Stanley in December was fined 20 million euros for market manipulation, the regulator’s joint-highest penalty.

Elliott General Counsel Richard B. Zabel said the allegations “don’t really make any sense because there was no purpose to them.”

“The CFD/swaps issue, it didn’t matter, everyone knows that when Elliott is involved in a stock it may seek to be a holdout or it may tender,” Zabel said Friday. “So there’s no deception there. It was a mistake at most.”

Jean-Pierre Martel, a lawyer for Elliott, wondered why there was so much “hostility” toward the hedge fund.

Martel said that Elliott made nearly 40 declarations and clearly wasn’t covertly building its stake in Norbert Dentressangle. The regulator was splitting hairs when comparing two similar financial instruments, he said.

“No differentiation is made in the market between CFDs and equity swaps,” he said. “It’s like a car and an automobile.”

Martel also rejected the allegations that Elliott had obstructed the probe.

“How can one speak of obstruction when someone has scrupulously responded to all questions asked and provide all documents required without any exception,” the lawyer said.

©2020 Bloomberg L.P.

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