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Recent developments on due process during AMF investigtations

December 2012

The Paris Court of Appeal has annulled a decision of the AMF's Enforcement Committee (Commission des sanctions) on the basis that it failed to comply with applicable procedural rules when interviewing a witness during its investigations. The decision underlines the importance that the French courts attach to rules which are designed to ensure that interviews during AMF investigations are conducted fairly.

Paris Court of Appeal, 13 September 2012, No 2011-17362

In a ruling handed down on 13 September 2012, the Paris Court of Appeal annulled a decision of the AMF's Enforcement committee on the basis that due process had been breached at the stage of the investigations.

The AMF had launched investigations against the Nortène company, one of its shareholders (the Kelly company) and their respective CEOs for failure to comply with obligations relating to information due to the public and for insider trading in the context of the recapitalisation of Nortène.

During the course of the investigations, the AMF investigators visited the offices of the parent company of Kelly (the GSTI company), at which point they interviewed its Secretary-General, Mr Monin.

Prior to this interview, the AMF investigators provided Mr Monin with a copy of a booklet entitled "Your rights during an AMF investigation" and with a copy of the provisions of the French Monetary and Financial Code dealing with professional secrecy and documents that can be seized and individuals that can be heard during AMF investigations (Articles L. 621-9-3 and L. 621-10 of the French Monetary and Financial Code).

Before the AMF's Enforcement Committee, Kelly and its CEO argued that this interview had been conducted in an improper manner. They requested that the statements made by Mr Monin be struck out of the file as well as any documents that were transmitted to the AMF as a consequence of this interview. The AMF's Enforcement Committee dismissed this argument and, by a decision dated 5 March 2009, sanctioned Nortène, Kelly and their CEO to penalties.

The Paris Court of Appeal, to which Kelly and its CEO applied to obtain the annulment of the AMF's Enforcement Committee's sanction, equally dismissed this argument and confirmed the AMF's Enforcement Committee's ruling on 30 March 2010. Kelly further appealed to the French Supreme Court, which, on 24 April 2011, reversed the Court of Appeal ruling. It held that the Court of Appeal failed to establish whether Mr Monin had waived, prior to being heard, the applicability of the rules on interviewing witnesses by the AMF and hence failed to provide a sufficient legal basis for its ruling. The Supreme Court consequently referred the case to another Court of Appeal to rule again on this issue.

The second Court of Appeal ruled on 13 September 2012. It held that AMF investigators can hear any individual who may provide relevant information in the context of investigations, but such interviews need to comply with the rules in order to ensure that the investigations are conducted fairly. However, an individual may waive the applicability of the rules, and in particular waive his or her rights to a delay prior to being interviewed and the right to be assisted by legal counsel.

The Court noted that (i) the minutes of the interview did not mention that Mr Monin had waived his rights under the rules; (ii) the booklet entitled "Your rights during an AMF investigation" that was given to Mr Monin at the time did not contain any information about being interviewed immediately and the opportunity to ask for a delay; and (iii) it was not established that Mr Monin, assuming that he had time to read this documentation prior to making these declarations, knew the rules and that he had been informed of his rights. Consequently, it was not established that Mr Monin waived his rights to these procedural guarantees.

The Court of Appeal found that the statements made by Mr Monin needed to be struck out of the file as well as any documents that were provided as a consequence of Mr Monin's statements. The court held that it was not necessary to show that Mr Monin's statement influenced the subsequent request for documents but that it was sufficient to show that "it could not be excluded" that his statement influenced these requests. The court went even further and annulled the AMF's Enforcement Committee's ruling in its entirety. According to the court, it could not be argued that Mr Monin's declarations had not influenced the AMF's Enforcement Committee, given that its decision was based on factual elements of which the AMF investigators became aware during Mr Monin's interview. This is not the first ruling that emphasises the importance of due process rules during an AMF investigation. According to recent case law, and as held here, despite the fact that the AMF is not a judicial body (it is an administrative independent authority), it nonetheless needs to comply with due process rules, notably those enshrined in Article 6-1 of the European Convention of Human Rights, as well as its own procedural rules.

This Court of Appeal decision is particularly striking because the violation of due process here led to the annulment of the AMF's substantive decision. This is, however, unlikely to lead to systematic annulments of decisions by the AMF's Enforcement Committee where a rule of procedure has been breached. It may lead to the annulment of the related investigation act but will only lead to the annulment of the entire procedure where it can be shown that the AMF Enforcement Committee relied on the information that was irregularly obtained.

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