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Paris Court of Appeal annuls AMF decision for violation of the European Convention on Human Rights

Paris Court of Appeal, Autorité des marchés financiers v Sté Compania Internacional Financiera SA, 24 October 2013, RG No 2012/14904

The Paris Court of Appeal has annulled a decision of the Enforcement Committee (Commission des sanctions) of the AMF (Autorité des marchés financiers) on the basis that it had violated the European Convention on Human Rights (ECHR).

The case relates to the share capital increase undertaken in September 2008 by Natixis. A few days after the press release relating to this capital increase, Lehman Brothers filed for bankruptcy, creating highly speculative market movements worldwide.

Around the same time, two offshore hedge funds, Coudree Capital Management (CCM) and Compania Financiera Internacional (CIF) purchased preferential subscription rights to Natixis' new shares and short sold original Natixis stock, thus generating a net capital gain of over EUR 2 million. The AMF launched investigations against several companies, including CCM and CIF, on the basis that they had breached French provisions on short sale (and in particular, the requirement to deliver financial instruments within three days of their sale). The AMF's Enforcement Committee subsequently imposed a penalty of over EUR 2 million on CIF and of EUR 1.5 million on CCM.

CIF and CCM applied to the Court of Appeal to obtain the annulment of the AMF's decision on the ground that the composition of the AMF's Enforcement Committee was irregular.

The appeal did not focus on the merits of the decision, but rather on a procedural matter. The Paris Court of Appeal annulled the AMF's decision in its entirety because the AMF's Enforcement Committee had unilaterally modified its composition on the day of the hearing, which did not leave enough time for CIS and CCM to challenge this new composition if they wanted to.

This decision is particularly uncompromising in light of the factual background of the case. Indeed, the composition of the Committee presented no grounds for recusal. Nonetheless, the Paris Court of Appeal held that the fact that the initial composition had been modified before the expiration of the 15-day recusal period was sufficient to characterise a breach of article 6-1 of the ECHR on due process, since the appellants were deprived of their right to dismiss a member of the Committee prior to the hearing.

This ruling and the severity with which the Court of Appeal sanctioned the AMF are part of a larger trend where regulatory agencies are increasingly sanctioned for procedural breaches, in particular in light of the ECHR.

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