A US professor and expert on insider dealing told the High Court yesterday that information in the possession of DCC chief executive Mr Jim Flavin at the time of a controversial €106 million sale of its stake in Fyffes in February 2000 was "highly negative" about Fyffes' trading performance and "definitely" price-sensitive.
If publicly disclosed at that time, it was his view the information would have materially affected the price of Fyffes shares, Prof Daniel R Fischel said.
The information available to Mr Flavin by the end of January 2000, days before the first of three sales of Fyffes shares, showed that Fyffes' trading performance for the first quarter of the 2000 fiscal year (beginning November 1999) was the poorest it had been in the previous 10 years, he said.
The information showed that November and December 1999 had returned the worst Fyffes trading performances of those months since 1991, and there was a poor forecast for January 2000.
There was no question the information was "highly negative" and that was illustrated by the fact that the Fyffes share price fell by 14.9 per cent on March 20th, 2000, the day it disclosed its poor trading performance in a profit warning, and by 8.9 per cent the following day.
The overwhelming reason for the share price decline was the company's poor trading performance, said Prof Fischel, who has given evidence in relation to many US corporate scandals, including Enron.
Prof Fischel was giving evidence on the 23rd day of proceedings by Fyffes against DCC, Mr Flavin and two DCC subsidiaries, arising from the share sales of February 2000. The defendants deny Fyffes's claim that the sales were organised by DCC and Mr Flavin in breach of insider-dealing provisions of the Companies Act 1990.
Prof Fischel told Mr Paul Gallagher SC, for Fyffes, that he was president of Lexecon, a consultancy firm specialising in the application of economics to legal and other issues. He was an attorney and professor of law and business at the University of Chicago Law School. He had given evidence in many cases of insider dealing.
In deciding what was price-sensitive information, it was necessary to understand the nature of the information itself and to look at it in relation to what stock market participants expected.
Information about the earnings or profitability of a company was likely to be among the most important types of information, especially if it represented a deviation from past performance and from what the market and analysts expected.
The assessment of whether information was price-sensitive could also be assisted by looking to see what happened to a share price when the information was actually disclosed and whether it caused the market and analysts to change their views on the future profits of a company and the value of its stock.
In Fyffes's case, when the information was disclosed on March 20th, 2000, the price fell and, about a month later, when analysts revised their forecasts for the company's performance for the fiscal year 2000, they referred specifically to the March 20th announcement as the reason for their doing so.
Prof Fischel disputed the findings of a number of experts for the defence that the information was not price-sensitive and said those findings were wrong.
Cross-examined by Mr Michael Ashe SC, for the defence, Prof Fischel agreed several factors might influence a company's share price. He had not calculated exactly how much of a share price decline there would have had to be in the Fyffes share price at the time of the share deals in order for that decline to be considered statistically significant.
While agreeing that information about the monthly performance of Fyffes in any given year was private information which would not be released to the market, he disagreed with Mr Ashe's suggestion that he was confusing price-sensitive information with knowledge that is personal to a share dealer.
He accepted the results of individual months were not separately reported in a company's half-year or full year returns and agreed no analysts could have concluded, on receiving the alleged price-sensitive information, that Fyffes had just experienced the worst November of the previous 10 years.
He said the reason the information was price-sensitive was because both Fyffes and analysts had predicted a minimum growth rate of 5 per cent for the company in the fiscal year beginning November 1999. If there was private information suggesting that growth was less likely to be achieved, and increasingly less likely when the December information and the forecast for January became available in late January 2000, that information was price-sensitive because it informed analysts the profitability of the company in 2000 was likely to be significantly less than forecast.
The case continues today before Ms Justice Laffoy.
