T Nation

Just Desserts (Crepes Flambe, etc.)

I don’t know anything about this that isn’t in this story, but if there’s one thing the French know, it’s insider trading…


Soros French Insider Trading Conviction Upheld (Update3)

March 24 (Bloomberg) – Billionaire investor George Soros was found guilty of insider trading by a French appeals court, upholding a 2002 conviction in a case that he’s been fighting for 16 years.

The Paris appeals court ruled that Soros’s 1988 purchase of Societe Generale SA shares with the knowledge that the bank might be a takeover target broke French insider trading laws. The court today confirmed an earlier order asking Soros to pay back his 2.2 million euros ($2.9 million) in gains. Prosecutors didn’t ask for punitive damages and Soros faces no other penalties or restrictions in France.

“It’s a long and badly handled investigation that has led to a bad decision,” said Jean-Michel Darrois of Darrois Villey Maillot Brochier, one of Soros’s lawyers. The lawyer said Soros will appeal the case at the Court de Cassation, the equivalent of the Supreme Court. Soros wasn’t present in the courtroom.

The verdict marks the only legal stain on Soros’s 40-year investing career. It comes at a time when Soros, 74, is no longer actively investing and has turned his attention to political and charitable activities. Soros contributed $26.5 million to a failed effort to defeat President George Bush in last year’s U.S. presidential elections.

“Mr. Soros maintains his innocence,” said Michael Vachon, his spokesman. “He will appeal this case. He is confident that he will ultimately be vindicated in this matter and that justice will be served.”

Soros can also file a complaint at the Strasbourg, France- based European Court of Human Rights, arguing that the 14 years it took to bring the case to court violated his right to a speedy trial.

Soros History

The hedge fund manager has been no stranger to controversy. For more than two decades, Soros has used his wealth to influence governments, both as an investor and as a philanthropist. In 1992, he correctly bet $10 billion that the British government would let the pound slide in value; in a headline, the Times of London called him “The Man Who Broke the Bank of England.”

In 1997, Malaysian Prime Minister Mahathir Mohamad accused him of attempting to destroy Southeast Asia’s economy by selling the ringgit and other regional currencies and decreasing their value, an allegation Soros denied.

In 2003, his New York-based philanthropic organization, the Open Society Institute, backed groups calling for fair elections in the Republic of Georgia, helping oust President Eduard Shevardnadze. The organization spent $429 million on pro- democracy and social programs in 60 countries that year.

Soros Testimony

In the French case, Soros argued at the appeal court’s hearing on Feb. 10 that he didn’t consider the information that led him to buy Societe Generale shares to be confidential. “I knew it wasn’t known to the general public, but I didn’t consider it privileged,” he told the court.

Soros used confidential information to trade shares of the French bank Societe Generale during a takeover battle in 1988, a Paris court had ruled after a weeklong trial in 2002.

In France, a suspect is presumed innocent until the final appeal is completed. Unlike in the U.S. where appeals courts rarely re-examine facts, French appeals courts can review the finding of facts in the original trial. The Feb. 10 hearing and the original trial covered much of the same ground.

The defense and prosecution agreed that Soros was aware of a pending stock market raid on Societe General when he bought the shares. They disagreed on whether the information he had was precise and confidential enough to constitute insider trading.

“Stripped down to its essentials, this information was confidential and prohibited all operations for those who had it,” Denys Millet, the state’s prosecutor said Feb. 10.

The Case

The French government sold Societe Generale in June 1987 at 407 French francs (then $63) a share. A year later, after a stock market crash, the shares had fallen to 260 francs.

In September 1988, financier Georges Pebereau sounded out about 20 investors, including an adviser to Soros, about joining him in building a stake in the bank, according to the case presented in 2002 and again on Feb. 10.

Soros, who never spoke directly to Pebereau about the investment, declined to take part in the operation. His Quantum Fund that month spent $50 million to buy 160,000 shares of Societe Generale as well as shares in three other companies the French government had sold and whose stock had tumbled.

In October 1988, Pebereau’s Marceau Investissement built a 9 percent stake in Societe Generale and tried to get the bank’s management to agree to a takeover. The bank refused, and the effort fizzled when Societe Generale shares surged as high as 600 francs in December.

“Small” Investment

Soros said he sold all those shares by November 1988 after an October visit to Paris convinced him that Pebereau’s takeover attempt was driven by the desire of a newly elected French government to place allies on the boards of companies that the previous government had sold.

Soros said he considered his investment in Societe Generale as “small.” He said the Quantum fund had $6 billion under management at the time, with annual profits of $800 million.

Under French law, a transaction is considered insider trading if it is based on precise and confidential information that eliminates the usual risk of stock market investing. French prosecutors must show criminal intent, not just negligence, for insider trading convictions.

Soros would not face insider trading charges in the U.S. because the information he received didn’t originate inside the company or was otherwise non-public, said Michael Perino, a securities law professor at St. John’s University School of Law in New York.

“Somebody with no affiliation with the company tells George Soros ‘I’m going to buy a big chunk of company x stock’ doesn’t strike me as insider trading,” Perino said.

The man is a billionaire, and he can’t just pay the 2.9 mil and move on?

[quote]nephorm wrote:
The man is a billionaire, and he can’t just pay the 2.9 mil and move on?[/quote]

When have the French ever paid for anything


If the case has been going for 14 years, I would bet he’s spent at least that much in legal fees – and that would be on the low end of the estimate, given that apparently each appellate review is like a whole new trial, with all the documentation and evidence being re-presented.

Couldn’t happen to a nicer guy though, from what I understand (FYI, his private reputation – at least in some circles to which I have had access – is that of an ass, irrespective of what you think of his politics).

Now let me get this straight…
Soros made 2.9 million off of this deal, which he could have had invested almost anywhere for 16 years at +/- 6% compounding interest? Lessee…multiply the six, carry the one…

BTW, a little off-topic observation: This is a very well written article in terms of structuring and content w/r/t balancing both sides of the issue. Keep it in mind when you read other news stories.

[quote]nephorm wrote:
The man is a billionaire, and he can’t just pay the 2.9 mil and move on?[/quote]

Because Soros has an ego larger than Texas. With guys like this, money is not even a consideration. Playing the game and winning at any cost are all that matter.

[quote]BFG wrote:
Because Soros has an ego larger than Texas. With guys like this, money is not even a consideration. Playing the game and winning at any cost are all that matter.[/quote]

If it had been me, I just would’ve taken an Alford Plea (if the French have an equivalent of that), paid the damn thing and moved on. Oh well.

Great article, BB.

So let’s see: perhaps Moveon.org’s biggest benefactor and one of the most rabid critics of Bush has:

a) nearly bankrupted the Bank of England through speculation

b) now been fined close to $3 million for insider trading

A real man for the people. You just can’t write good endings like this.