Executives Will Testify in Airbus Inquiry By NICOLA CLARK Published: November 22, 2009

One of highest-profile insider-trading inquiries in Europe in recent years will enter its final phase Monday as more than a dozen current and former executives of the aerospace group EADS and its Airbus subsidiary testify before a French regulator that is weighing more than €12 million in fines.
The weeklong hearing of the sanctions committee of the French Financial Markets Authority follows a two-and-a-half-year investigation into allegations that top managers of the two companies were aware of manufacturing problems with the Airbus A380 superjumbo jet when they sold shares in European Aeronautics Defense & Space in March 2006, three months before the troubles became public and the company’s shares tumbled.
The stakes in the EADS case — which dates back to 2006 — are high for both the regulator and the accused, lawyers and analysts said. Popular resentment of corporate leaders is still running high here in the wake of last year’s financial market meltdown, putting pressure on the French authority to demonstrate that it has the teeth to enforce fair trading. Meanwhile, EADS and its main industrial shareholders — the French media group Lagardère and the German car maker Daimler — are eager to put the headlines about the affair behind them.
“There are very few instances today in France where people are actually convicted of insider trading,” said Frédérik-Karel Canoy, a lawyer representing the individual French shareholders of EADS. Since insider trading became a crime in the 1970s, he said, “the regulator has rarely fulfilled its role as defender of small investors.”
A confidential report in July by the regulator’s lead investigator in the case charged Noël Forgeard, a former EADS co-chief executive, and six other individuals with profiting illegally from privileged information and accused EADS itself of failing to properly inform investors about the delays in the A380 program, according to people who have read the report.
The same report exonerated 10 other executives whom the regulator had formally accused of insider dealings in 2008 — including the current Airbus chief executive, Thomas O. Enders. Lagardère and Daimler were also cleared of any violation.
Following the report in July, the regulator’s sanctions committee has sought to determine what the accused executives would have known about the troubled A380 project when they sold their stock in early March 2006, three months before the problems with that aircraft program became public on June 13. The shares plunged 26 percent the next day.
The authority’s investigator has recommended that Mr. Forgeard, who was ousted in July 2006, pay the most severe penalty, €5.45 million, or $8.1 million, after he reaped profits of more than €3.5 million from exercising his EADS share options.
Mr. Forgeard has consistently maintained his innocence. In October, his lawyers asked the regulator to review new evidence that they said proved that he had moved to sell his shares well before a meeting of EADS and Airbus executives on March 1, 2006, when the regulator said the A380’s production problems were first discussed.
The evidence includes a series of documents that were seized during police raids of Mr. Forgeard’s office in December 2006, said a person who had read the documents but was not authorized to discuss them. Among them is a letter dated Feb. 12, 2006, written by Mr. Forgeard informing his bank, Edmond de Rothschild, of his intention to sell a portion of his EADS shares and of his plans to give some of the proceeds to his children. The letter also indicated that Mr. Forgeard had sought approval of the sale from the EADS chief financial officer and head of compliance, Hans Peter Ring.
A spokesman for Mr. Forgeard declined to comment. Telephone calls to his lawyer were not returned.
According to a person who has seen the regulator’s July report, the investigator has also recommended a fine of €3.6 million for John Leahy, the chief commercial aircraft salesman at Airbus; €1.1 million for Jean-Paul Gut, a former EADS chief operating officer and board member; €710,000 for Andreas Sperl, a former financial director at Airbus; €360,000 for Alain Flourens, a manager in charge of the main Airbus engineering centers; €310,000 for Olivier Andriès, a former Airbus vice president; and €90,000 for Erik Pillet, a former Airbus director of human resources.
EADS itself faces a fine of €700,000 for failing to release information fast enough about the delays in A380 deliveries. Those delays eventually stretched to more than two years, resulting in over €5 billion in losses for the company.
The regulator’s sanctions committee is expected to take up to three weeks to deliberate after this week’s hearings, making a final decision likely before Christmas. Any defendant who is found guilty can bring his case to the Paris court of appeals, a process that would take at least another year, legal experts said.
Defendants often do succeed in having the regulator’s rulings overturned in French courts.
“It happens — and it’s not that rare,” said Stéphane Bonifassi, a lawyer in Paris who specializes in financial crimes. In highly publicized cases like the EADS affair, however, many judges have bent to political pressure to uphold the regulator’s findings, he said.
In fact, even when the regulator has failed to find sufficient evidence of insider trading, the French courts have been known to convict. Such was the case with the American financier George Soros, who was fined €2.2 million in 2002 by a French court that found he had illegally profited from privileged information about a 1988 takeover bid for the bank Société Générale. A 1989 inquiry by the Commission des Opérations de la Bourse — a predecessor of the Financial Markets Authority — found no evidence of insider trading according to the rules in place at the time. Mr. Soros failed to have the verdict overturned by the French supreme court and in 2006 filed an appeal to the European Court of Human Rights in Strasbourg. That case is still pending.
Several executives in the EADS case are also subjects of a separate criminal court inquiry.
Legal experts said the French markets authority appeared to be getting more aggressive about pursuing insider-trading cases in recent years, though the financial penalties applied were usually far lower than the maximum allowed, or 10 times any profits made from the illegal dealings.
“We are seeing more cases prosecuted and the sanctions are getting harsher,” Mr. Bonifassi said. “But compared to what can be handed down in the U.S., the fines are still not very high. If all you do is make them give back the profit, that’s nothing.”