Investigator found only a costly error of judgment

FINDING:EVEN THOUGH the two exercises involve courts and lawyers, Bill Shipsey's investigation into the background to the Fyffes and DCC insider trading case was a completely different exercise to a trial.

Shipsey’s investigation found that DCC executive chairman, Jim Flavin, did nothing more than make a costly error of judgment when he agreed to the sale of his company’s shares in fruit importer, Fyffes, in February 2000.

At first glance, this seems to run counter to what emerged after more than 80 days of litigation. The Supreme Court’s ruling in July 2007 led to a finding that Flavin, and DCC and two of its subsidiaries, engaged in insider dealing in Fyffes shares. DCC subsequently paid the fruit importer €42 million in compensation and legal costs.

Shipsey’s report does not dispute the Supreme Court’s ruling, and in fact, it cannot. What the court said on the matter in 2007 is final and cannot be revisited.

The case that wound up before the Supreme Court turned on one specific point that two teams of lawyers were disputing: whether or not the confidential information that Flavin had on Fyffes falling sales and profits at the time of the share sale was “price sensitive”.

In other words, if other investors had known about it, would they have begun selling – or buying – Fyffes shares at such a rate that their price would have been affected.

The Supreme Court ruled that the information was price sensitive within the meaning of section 108 of the 1990 Companies Act, which outlawed insider trading.

The court’s job was to interpret the law, but Shipsey had a different task. In his report, he points out that “I am an inspector, not a court of law”.

He was required to investigate what happened, establish if there had been any potential abuse or breach of company law, and to write a report, but it did not involve anything of a judicial nature.

The High Court appointed Shipsey, a senior counsel at the request of Paul Appleby, the director of corporate enforcement – the State’s company law watchdog.

He had to focus on three transactions, the transfer of DCC’s Fyffes shares to its subsidiaries SL and the Dutch-based Lotus Green in 1995, and the subsequent sale of the equities in February 2000.

He was required to establish if DCC had properly notified the transfers to SL and Lotus Green to Fyffes, and to identify any possible breaches of the law dealing with insider trading.

High Court inspectors such as Shipsey have have far-reaching powers. They can compel witnesses to appear and be interviewed under oath, and demand documents or other material that they believe is needed for the investigation. Anyone who fails to co-operate could end up facing court proceedings.

However, the barrister is adamant that he got full, even enthusiastic, co-operation.

The regime exists to ensure that companies “do not abuse the privileges which incorporation confers on them to the detriment of their members, their creditors or indeed the public in general”, according Shipsey.

He found that no such abuses took place, and instead, his report states that all parties involved took compliance very seriously.

The actual law on insider trading has since been changed, and lawyers suggest that under the new provisions, neither Flavin nor DCC would have been found to have engaged in insider trading.

However, those new provisions have yet to be tested. That exercise that will require courts, lawyers and possibly a High Court inspector.