Public Enforcement of Market Abuse Bans. The ECtHR Grande Stevens Decision

Abstract

The decision of the European Court of Human Rights (ECtHR) in Grande Stevens et al v Italy has already become an oft-mentioned touchstone on the implications of human rights protection in financial markets law.1 The Court’s ruling sets out some important principles in two fundamental areas: first, it clarifies to what extent administrative procedures are bound by the fair trial provisions of the European Convention on Human Rights (ECHR) (Article 6) when sanctions are applied that—albeit administrative in form—are criminal in substance. Secondly, the decision imposes some limits on the joint application of criminal and (formally) administrative sanctions in light of the double jeopardy clause set forth in Article 4, Protocol 7, ECHR. Grande Stevens concerned an alleged lack of disclosure relating to an equity swap on shares issued by Fiat Spa, the Italian carmaker listed on the Milan Stock Exchange. In 2002, Fiat was in financial distress and received a convertible loan from a bank syndicate. The loan covenants provided that if Fiat did not repay its debt at maturity (September 2005), it would have to instead deliver shares for an equivalent amount. As the repayment deadline approached, it became clear that a share issue would have been more convenient than total repayment. However, conversion of the outstanding debt would have diluted the Agnelli family's controlling stake—held through the listed company Ifil Spa—from 30.06 to 22 percent of the outstanding voting capital, while the bank syndicate would have ended up with a global participation of up to 28 per cent. In April 2005, Exor Group Spa entered an equity swap contract on 90 million Fiat shares with Merrill Lynch. Both Exor and Ifil were controlled by Giovanni Agnelli Sapa. Under the contract, Exor took the equity leg and had the right to receive cash flows if the price of …