Trading on secret knowledge 'a crime', judge says

Trading on secret or privileged information is now recognised for what it is - "a fraud on the market", Mr Justice Nial Fennelly said. Such trading was not considered any sort of a sin in the past, he noted, "that was how fortunes were made".

The position now is that the insider "who exploits his access to the special knowledge he enjoys for the purposes of the company in his capacity as executive or director of a company, commits a crime," the judge said. "He may be made, additionally, to answer for the profits he made."

It was "a tribute" to Ms Justice Mary Laffoy that there was no dispute about her findings of primary fact in this case, including her finding that DCC chief executive Jim Flavin dealt in the Fyffes shares on February 3rd, 8th and 14th, 2000.

There was also no challenge to her finding that the DCC defendants could be made to account in equity for any profit made from those share sales.

The Fyffes appeal turned on the likely price effects of a limited body of "comparatively simple facts", largely the sort of facts upon which common-sense judgments and opinions could be formed without an extraordinary degree of expertise.

He believed the length of the Fyffes trial was "the product of the large amounts of money at stake and the depth of the respective corporate pockets, rather than the complexity of the issues".

The ultimate conclusion of the High Court that the information held by Mr Flavin was not price-sensitive was affected by two errors, he said.

The High Court should have adopted a straightforward test of the effect on the market of the bad trading news regarding Fyffes and should not have excluded the effect of the release of a Fyffes profit warning in March 2000, just weeks after the last of the DCC sales.

Fyffes's own behaviour, including the purchase by its then chairman Neil McCann of a bottle of champagne to celebrate the DCC sales, contained no legal weight, the judge stressed.

The only matter which could conceivably have carried legal weight was the fact that Fyffes made no announcement to the market under stock exchange listing rules. A rule of January 2000 required the market to be notified of any change of expectation for a company's performance, but there was no claim in the case that Fyffes had breached that rule.

In his judgment, Mr Justice Joseph Finnegan said the information in the December trading figures available to Mr Flavin was far more specific information than that of the Fyffes profit warning of March 20th, 2000, which later led to an immediate 15 per cent fall in the share price.

The December information "put figures to the problem and dramatic figures they are," the judge said.

Fyffes had told the market in a statement of December 14th, 1998, that its board believed 2000 would be another year of "further growth", but it appeared from the December trading report figures that Fyffes would sustain losses in the first quarter of financial year 2000.

If the market had had the "hard information" available to Mr Flavin, the share price would have been affected.

Ms Justice Fidelma Macken said the High Court erred in not concluding that the information in the trading reports would have materially affected Fyffes's share price and that the insider dealing provisions of the Companies Act had been breached by Mr Flavin and the DCC defendants.