Hermes Accuses Heir of Lying About Shares During LVMH Battle

(Bloomberg) -- French authorities are looking into whether a Hermes International heir lied about selling some of his shares during a rival’s attempt to build a stake in the maker of $10,000 Birkin handbags.

The probe into Nicolas Puech’s claim he still owned nearly 6% of Hermes half a decade ago was sparked by tension in the family after LVMH’s 2010 surprise stakebuilding. The case, which focused on the role of Puech’s wealth manager, Eric Freymond, was secret until its disclosure this month by France’s top court.

After messy legal battles against the Hermes founding family, LVMH boss Bernard Arnault started to unwind the 23% stake in 2014. The family then turned on itself, and Hermes International lodged the criminal complaint. Hermes told French investigators Puech, a great-great-grandson of the founder of the 183-year-old company, made a false statement to the luxury firm about his shareholding.

The whole affair “highlights a complete failure of family governance,” David Hawkins, co-founder of family business consulting firm Percheron Advisory, said.

The French investigation, which is nearing completion, is looking into the suspicions of authorities that Freymond played a role in the 77-year-old Puech’s share disclosures for 2013 and 2014. According to the top court ruling detailing parts of the case, investigators suspect that the wealth manager acted “in an intentionally deceitful manner” and provided false data that led to the sworn statements.

The probe came to light in a ruling by France’s top court that threw out some evidence against Freymond. His attorney said the decision may upset the probe.

‘Surprised’

François Besse, a lawyer for Puech, said his client was “surprised” by the Hermes complaint and hasn’t been charged. The share statement, “which Mr. Puech had no legal obligation to sign, was not signed lightly but after verification with his bankers of the exact number of Hermes shares he held,” Besse said.

François Zimeray, an attorney for Freymond, described the case as “poorly extinguished embers of an old fire” and said his client “fully contests” the allegations. Paris prosecutors said that the probe is ongoing.

Hermes declined to comment beyond noting that it no longer breaks out Puech’s holding since it published its 2016 annual report. LVMH declined to comment, saying it isn’t a party to the investigation.

According to the top court ruling, French investigators’ checks found that Puech hadn’t owned nearly 6% of Hermes shares since 2012, and they say his claim made the firm provide inexact information about its share allocation and floating capital. Hermes also alleges Puech failed to stick to a legal obligation to publicly state that his shareholding had gone below 5%.

$6 Billion Holding?

Besse dismissed the allegations, saying his client’s 5.8% stake was unchanged.

“Mr. Puech still owns, among other securities, these 6,082,615 Hermes shares, which he has always managed alone,” the lawyer said. He added that Puech didn’t sell shares to LVMH.

Since the end of 2015, Puech stopped disclosing his exact Hermes holding, which would now be worth about $6 billion if he still has the 5.8% stake. The family is among the world’s richest with a fortune of more than $60 billion, according to the Bloomberg Billionaires Index.

The luxury firm has pretty much always been a family affair. Axel Dumas, a member of the sixth generation, has been at the helm for half a dozen years. Puech and his brother Bertrand, who led the counter-attack to fend off LVMH, are the grandsons of Emile Hermes, who transitioned the saddlemaker into luxury bags. Nicolas’s cousin, Jean-Louis Dumas, led Hermes from 1978 until his retirement in 2006.

Although the court case has been secret, the rift caused within the Hermes family by LVMH’s disclosure of its stakebuilding on Oct. 23, 2010, is well-known.

Puech has been seen as a rebel ever since he became the only relative not to put any shares into a new holding company set up in 2011 to prevent LVMH from wresting control. He said at the time that he thought the move would deprive them of the power to individually influence the firm’s management.

Court Ruling

The family tensions have also been visible in Hermes’s filings. Puech joined Hermes’s supervisory board in 2012 and attended each meeting that year. In 2013, though, he attended less than a third of them, the fewest among members, and didn’t attend any the following year after resigning from his position in August.

He stepped down “because he has felt for several years beleaguered by members of his family, who have attacked him on several fronts,” Fashion Network reported at the time, citing a spokesperson for Puech.

The French top court got involved when Freymond challenged the evidence used by investigators.

The wealth manager won an argument about documents provided by a Swiss stock-market regulator in a related case that was closed four years ago without charges. The Cour de Cassation said the evidence shouldn’t have been used as the purposes of the two probes were different. The current one focuses on forgery allegations, while the other targeted possible market abuses.

While it’s unclear how central to the case the disputed evidence is and what impact Freymond’s court victory will have on the investigation, Zimeray says the ruling “will further weaken an already fragile complaint.” Additionally, a new investigative judge, who may have different views on the case, is now in charge after the previous one left her position several months ago.

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