Reports available to DCC chief 'were not insider information'

Information available to DCC chief executive Jim Flavin prior to the controversial sale of the DCC stake in Fyffes in early 2000 did not amount to "insider" information, a US expert on financial markets told the High Court yesterday.

The reports, which Fyffes allege were used for insider trading, primarily indicated a poor financial performance by Fyffes over the period from November 1999 to January 2000, Professor SP Kothari said. In his view, that information would have been generally known to the market and investors.

He had concluded the information available was already factored into investors' expectations about Fyffes' cashflow at the time the alleged insider sales were made in February 2000.

Therefore, release of the reports to the public at the time of the transactions would not have materially affected the price of Fyffes stock.

Prof Kothari was beginning his evidence at the resumption yesterday of the long-running action by Fyffes alleging insider trading in connection with the €106 million sale of the DCC stake in Fyffes over three days in February 2000.

The action is against DCC, Mr Flavin and two DCC subsidiaries - S & L Investments and Lotus Green.

The defendants deny the claims and plead the sales were properly conducted by Lotus Green, a Dutch-resident subsidiary of DCC to which beneficial ownership of the Fyffes stake was transferred by DCC and S & L in 1995 for the purpose of avoiding payment of Capital Gains Tax on any subsequent sale of the shareholding.

On the 72nd day of the case yesterday Prof Kothari, called as an expert witness for DCC, said he was the Gordon Y. Billard Professor of Management at the Sloan School of Management of Massachusetts Institute of Technology and had been retained by William Fry, solicitors for DCC, as an expert witness for DCC.

He had been asked to determine whether certain non-public information possessed by Mr Flavin and Lotus Green at the time of the sales was price sensitive - that is, whether it would have materially affected the Fyffes share price had it been known to the market.

He said the information in question was contained in the Fyffes November 1999 management accounts and the Fyffes December 1999 trading report. Those documents primarily indicated a poor financial performance by Fyffes over the period November 1999 to January 2000.

In his view, the reports did not contain information which would indicate that Fyffes' exposure to market risk had changed.

The weak performance was primarily due to weaker banana prices due to oversupply and adverse Euro/dollar exchange rates and both those factors would, in his view, have been well known to the public.

He based that opinion on an earnings model for Fyffes which he had constructed using only information which would have bene available at the time of the sales.

He argued it was possible for investors in Fyffes in early 2000 to have constructed similar models to make a reasonable analysis of Fyffes performance using information generally available on banana prices and exchange rates.

While he didn't have the exact details of Fyffes prices, he believed the information he had could be used to make reasonable assumptions about Fyffes' prices.

A banana was a banana, it was a commodity, it was "not like a Versace dress". He believed criticism of his model by Fyffes' experts was unfair.

Prof Kothari said his conclusion that investors had already anticipated the information in the documents alleged to be inside information was supported by his observation that analysts had not significantly adjusted their forecasts for Fyffes following the company's release of a trading statement on March 20th 2000.

He disagreed with testimony from Fyffes experts suggesting that the reason why analysts had not substantially revised their forecasts after the March 20th Fyffes statement was because that statement had contained information about Fyffes internet venture (worldoffruit.com) which may have offset the bad trading news.

In his view, analysts were not anticipating the internet venture would generate any profit until long after the end of fiscal year 2000.

While Fyffes stock price had declined significantly after March 20th, 2000, the Fyffes statement of that date had contained other pieces of information as well as disclosure about poor performance in the first quarter of the fiscal year 2000, he said.

That other information included Fyffes' management expressing uncertainty about whether performance for the second half of fiscal year 2000 would compensate for the poor performance in the first half. Some of this additional information could plausibly have been seen as negative by the market and would not have been known at the time of the share sales.

In his view, Fyffes stock price after January 5th, 2000, had been behaving more like an internet stock than like a food stock. Large movements in the stock price were more likely to be attributable to news about its internet business than its food business.

Mr Paul Sreenan SC, for Fyffes, later yesterday began his cross-examination of Prof Kothari. The witness said that the expectations of investors and the market were crucial when interpreting information in the documents. He agreed analysts would not, in January 2000, have had numbers for Fyffes trading performance in November and December 1999.

The case continues today before Ms Justice Laffoy.