Flavin took advantage of 'price sensitive' data - Fyffes

The High Court was told that Jim Flavin was intimately involved in the share dealings and the fruit distribution firm had evidence of this, including tape recordings of conversations involving Flavin, writes Mary Carolan

DCC chief executive Jim Flavin "masterminded" unlawful "insider deals" worth €106 million in the shares of fruit distributor Fyffes plc, the High Court was told yesterday.

Fyffes had a tape recording of Mr Flavin, having concluded the deal with Mr Ronan Godfrey of Davy Stockbrokers, "laughing" as he told Mr Godfrey he had "no authority" to do so, the court heard.

That tape and others showed that, while DCC and Mr Flavin would claim he was "just a conduit for unsolicited bids", he was "far more", Mr Paul Gallagher SC, for Fyffes, said.

He said Mr Flavin "did not just pass on unsolicited bids, he negotiated the price, the class of shares to be sold, the commission rate and the split of the shares". Then Mr Flavin arranged for a purchasing agent to be contacted by a representative of Lotus Green, a DCC subsidiary and the alleged beneficial owner of the shares, and did so purportedly on the basis that he had "no authority".

In legal proceedings expected to last 10 weeks, Fyffes is seeking some €85 million compensation for the share deal which, the company claims, breached "insider dealing" provisions of the Companies Acts. The share disposal amounted to 87 per cent of DCC's shareholding in Fyffes.

The action is against DCC plc; S&L Investments, of DCC House, Stillorgan, Co Dublin; Mr Flavin, of Shankill, Co Dublin; and Lotus Green Ltd, of Fitzwilton House, Wilton Place, Dublin, a subsidiary of DCC which owned 10 per cent of Fyffes.

Opening the case yesterday before Ms Justice Laffoy, Mr Gallagher, with Mr Paul Sreenan SC and Mr Bryan Murray SC, for Fyffes, said Fyffes claimed that the defendants dealt in Fyffes shares contrary to the Section 108 of the Companies Act and that Fyffes was entitled to an account of profits as a result of that unlawful dealing.

His side would claim that Mr Flavin took advantage of price-sensitive and highly confidential financial information to procure the sale of the shares at a profit of €85 million.

He said the case arose from a series of transactions which occurred between February 3rd and 14th, 2000, during which 31.2 million shares were disposed of for €106 million. These shares were registered in the names of DCC plc and S&L Investments. Mr Flavin was a director of both those companies and, it would be claimed, he, DCC and S&L were "shadow directors" of Lotus Green.

Mr Gallagher said the shares in question were disposed of on three dates. On February 3rd 2000, 17.9 million shares were sold for €3.20 each. On February 8th, eight million shares were sold at €3.60 each and, on February 14th, 5.3 million shares were sold for €3.90 each.

The court would hear evidence that the proceeds of the share disposals remained within the DCC group.

The evidence, counsel said, would establish that Mr Flavin played a crucial role in the DCC group at all times and played a crucial and decisive role in the dealings that took place in February 2000. The extent of that involvement would be a matter of significant dispute.

Fyffes would produce evidence to show Mr Flavin had price-sensitive and confidential information concerning Fyffes' trading performance, especially in relation to the first three months of the financial year opening November 1st, 1999. He had significant information about Fyffes losses in November and December 1999, about forecasted results from January 2000 and about expected losses for the first quarter of 2000.

That information was gleaned by Mr Flavin in his role as a director of Fyffes.

It would be claimed that information was not known to the market generally at the time of the share disposals in February 2000 and that, after it was announced in March 2000, the Fyffes share price had fallen by 14.9 per cent on March 20th and a further 8 per cent on March 21st.

The defence would claim the price fall was due to the market's perception of Fyffes' involvement in a dotcom venture but his side would dispute that.

Questions were raised about the February share deals from early 2001, he said. Solicitors became involved in October 2001. There had been "a long and difficult forensic process" to try and establish what happened.

The information obtained by Fyffes, including tape recordings of conversations involving Mr Flavin and others on the relevant dates, were at odds with the defence claim that the board of Lotus Green had decided, of its own accord, to deal in the shares.

Fyffes' information showed that Mr Flavin was intimately involved in the dealing and the tapes were critical to that. The defendants had the tapes since December 2001 but were reluctant to acknowledge their relevance.

Mr Gallagher said that one thing which did not come across from the transcripts of the tapes, but was clear from the tapes themselves, was the terms in which Mr Flavin said to Mr Godfrey on February 3rd, 2000, that Mr Flavin had "no authority" to deal. That assertion by Mr Flavin was accompanied by a laugh which could be heard on the tape.

Having concluded the deal,there was then a "technical imposition" of Lotus Green to confirm it, Mr Gallagher said. Mr Tom Diepenhorst had phoned and asked Mr Godfrey: "How do we proceed?" There was a pause and then Mr Diepenhorst said: "I confirm the transaction."

Mr Gallagher said no questions which one might expect were asked of Mr Godfrey. It appeared the board of Lotus Green had sought no advice regarding the deal, including any advice regarding whether the dramatic rise in Fyffes' share price would continue.

On any view of the facts, Mr Flavin had induced the deal and was the man who had the exclusive contact with the brokers until Mr Diepenhorst's intervention late on the afternoon of February 3rd, 2000, counsel said. It was only when the deal was culminated that it was handed over.

Mr Gallagher said the defendants would claim that Mr Flavin did not deal as alleged but rather that he had received unsolicited bids and passed these on. DCC and S&L would also claim that, while they did sell shares, they had no inside information at the time and were not guilty of unlawful dealing.

The defendants also denied that the deal was based on price-sensitive information.

It was also pleaded that, even if the information was price sensitive, the only party to make a profit was Lotus Green and that it had never breached the Companies Act.

In relation to Lotus Green's position, Mr Gallagher said his side would argue that it dealt in the shares at a time when Mr Flavin and DCC were precluded from dealing and that Mr Flavin and DCC were at all times shadow directors of Lotus Green.

It would also be argued that Lotus Green was vicariously liable for Mr Flavin because he was centrally involved in the deal and was acting with Lotus Green's authority and that Lotus Green had effectively acted as an agent for DCC and S&L.

In assessing the accuracy of the defence claims, the court would have to look at how Lotus Green came into being and the extent of control exercised by DCC over it, counsel said. Fyffes was concerned with the manner in which Lotus Green was operated and directed.

The case continues today.

Chronology

January 10th, 2000: Fyffes shares trading at €2.25

February 3rd: DCC sells 17.9 million Fyffes shares at €3.20 each (a €57.28 million deal)

February 8th, 2000: DCC sells eight million shares at €3.60

February 14th, 2000: DCC sells 5.3 million shares at €3.90

February 18th, 2000: shares are trading at €3.95

March 16th, 2000: shares are trading at €3.30

March 20th, 2000: Fyffes issues trading statement

March 21st, 2000: Fyffes shares trading at €2.46.

April 28th, 2000: Fyffes shares trading at €1.85.

January 2002: Fyffes begins court proceedings