EBK Investigation Against Laxey – Key Findings and Legal Consequences Media and Analysts Conference 11 March 2008
Agenda
1. EBK Investigation – Background & Key Findings 2. EBK Investigation – Stakebuilding 3. EBK Investigation – Legal Consequences
4. Conclusion 5. Annex ©
Implenia | 11.03. 2008 | Page 2
EBK Investigation – Background Review on steps since end of March 2007 27.3.2007
Laxey holds 4.922% stake according to its requests for registration
17.4.2007
Laxey successively discloses a stake of 12.226% (per 4.4.07) and of 22.89% (per 16.4.07) It is impossible that Laxey built up its stake in this timeframe through share purchases on- and off-market
18.4.2007
EBK starts its investigation, i.e. immediately after Laxey disclosed its 22.89% stake
10.3.2008
EBK releases its ruling, finding Laxey guilty of breaching disclosure rules
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EBK Investigation – Key Findings
¾
Laxey crossed first disclosure threshold (5%) at the latest on January 1, 2007 ¾ 4.41% directly owned shares 9.22% ¾ 4.81% parked via CFDs
¾
Laxey increased clandestinely – through parking of shares with banks – its position until end of March 2007 to > 20%
¾
All Implenia shareholders who sold their shares during this period were deceived
EBK qualified Laxey‘s indirect purchase of shares (parking via CFDs) to build up their stake as a clear violation of disclosure obligations required by Swiss law
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Implenia | 11.03. 2008 | Page 4
EBK Investigation – How did Laxey build up its stake? LAXEY
Brokers
Banks
df
CFD-Counterparties
1
Order to buy shares
2
2 3
Parking of shares
Signing of CFDs („Parking-Tickets“) Retrieving of parked shares
1 Phase 1: Laxey gave brokers direct orders to buy shares on the market 2 Phase 2: Laxey gave orders to its brokers to transfer the shares to the banks and to park them there; simultaneously, Laxey signed CFD agreements with these banks
3 Phase 3: Laxey retrieved its parked shares through unwinding of its CFD positions ©
Implenia | 11.03. 2008 | Page 5
EBK Investigation – Which institutions were involved? Brokers1)
Banks CFD-Counterparties
Bank am Bellevue
LAXEY
Credit Suisse City Index
Instinet Man Financial KBC Securities Keijser
Bear Stearns Cantor Fitzgerald
Laxey orchestrated their stake building through a complex network of Swiss and international financial institutions 1) The four mentioned brokers received direct orders from Laxey; a few more brokers were indirectly involved in the transactions
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Implenia | 11.03. 2008 | Page 6
Agenda
1. EBK Investigation – Background & Key Findings 2. EBK Investigation – Stakebuilding 3. EBK Investigation – Legal Consequences
4. Conclusion 5. Annex ©
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Contract for Difference (CFD) – Definition / Laxey’s misuse Definition / Use of CFDs (when applied to equities) CFDs are derivative financial instruments which allow investors to speculate (with little investment) on share price movements without
Laxey‘s Misuse of CFDs Simultaneously: Laxey bought Implenia shares and transferred them to the banks (via brokers)
having to own the underlying shares
When receiving the shares the banks signed CFDs (each < 5%) with Laxey
Banks emitting CFDs usually hedge their CFD position through the partial purchase of shares (dynamic hedging)
Shares were not required by the banks to hedge existing CFDs; on the contrary, CFDs were emitted by the banks only after / because they received shares CFDs solely used as “parking tickets”! Later: Laxey unwound CFD positions and retrieved the parked shares from the banks
Laxey didn‘t use CFDs to speculate on share price movements but to clandestinely park and to indirectly purchase Implenia shares ©
Implenia | 11.03. 2008 | Page 8
EBK Investigation – Laxey’s own statement on CFDs Ironically, Laxey itself criticized the use of CFDs as indirect and nontransparent stake building mechanism Extract from Value Catalyst Fund’s (Laxey investment vehicle) Annual Report 2007, published on October 22, 2007: “All CFDs and equity swaps should be treated as though they were ordinary shares. We think all exchanges should adopt this immediately […] The market will be better informed about stakes being taken in companies and transparency will improve” Laxey adds: “[…]the hedge fund can trade away happily without declaring his position but has a poor relationship with the company in which he’s invested. One that can very easily lead to a hostile relationship.”
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Implenia | 11.03. 2008 | Page 9
EBK Investigation – Example of Laxey‘s Stake Building Transaction in 131‘211 Implenia shares (simplified description) LAXEY
CFD Counterparty
Execution Broker
Broker
8.1-10.1.2007: Delivery of shares1
LAXEY
„Share level“
1
8.1-10.1.2007: Purchase order
1
Keijser
Neonet 1
4./5.4.2007: Retrieving shares
8.1-10.1.2007: Purchase order
3 2
„CFD level“
LAXEY
City Index
10.1.2007: Parking / CFD Signing
1
Stake building
2
Parking of shares
3
Retrieving shares
10.1.2007: Laxey orders to transfer shares
2
Parking of shares during ca. 3 months
Dozen of such transactions were executed by Laxey between November 2006 and April 2007 to clandestinely build up its stake 1) On „warehouse account“ for Laxey ©
Implenia | 11.03. 2008 | Page 10
EBK Investigation – Phases of Laxey‘s Stake Building (1/4)
PHASE 1: Purchase of shares (Nov. 2006 – End of March 2007) ¾ Laxey purchased at least 4.41% on their own and gave 4 brokers direct orders to buy shares on the market and to warehouse them on its behalf
Quote, EBK investigation: ¾ “Ab Ende 2006 bis Anfang April 2007 erteilte Laxey einerseits diverse Aufträge an Keijser zum Erwerb von Implenia-Aktien. Diese Aktien wurden bei Keijser auf ein “warehouse account” für Laxey eingeliefert”.
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Implenia | 11.03. 2008 | Page 11
EBK Investigation – Phases of Laxey‘s Stake Building (2/4)
PHASE 2: Parking of shares via CFDs (Nov. 2006 – End of March 2007) ¾ Laxey signed CFD / SWAP agreements with 5 banks and simultaneously gave orders to its brokers to transfer the shares to the CFD counterparties (as hedge for their CFD/SWAP positions)
Quote by CFD partner Cantor: ¾ “On instructions from Laxey Partners, Keijser Capital [Broker] contacted Cantor Fitzgerald CFD desk and requested that they give up trades to Cantor Fitzgerald. These Equity trades were hedges for Contracts for Difference. The contracts for Difference were entered into with Cantor Fitzgerald CFD desk by Laxey Partners“
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Implenia | 11.03. 2008 | Page 12
EBK Investigation – Phases of Laxey‘s Stake Building (3/4)
PHASE 2: continued ¾ Laxey built up its position in a way that none of the 5 CFD counterparties individually crosses the 5%-threshold
¾ Per 31.3.2007 the banks were holding the following CFDs / stakes in Implenia ¾ ¾ ¾ ¾ ¾
City Index Man Financial Credit Suisse Bear Stearns Cantor
904‘793 (4.90%) 906‘022 (4.90%) 867‘697 (4.70%) 740‘000 (4.01%) 210‘400 (1.14%)
3‘628‘912 (19.65%)
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Implenia | 11.03. 2008 | Page 13
EBK Investigation – Phases of Laxey‘s Stake Building (4/4)
PHASE 3: Closing of CFD positions and transfer of shares to Laxey (3-5 + 16 April 2007) ¾ Laxey (partially)1 unwound its CFD positions and retrieved (on 4 days) their parked Implenia shares
¾ 3. 4 ¾ 4. 4 ¾ 5. 4 ¾ 16. 4
659‘411 (Credit Suisse) 652‘146 (City Index) 210‘400 (Cantor) / 901‘022 (Man) / 252‘647 (City Index) 423‘512 (Bear Stearns)
3‘099‘138 (16.76%) + their own stake of 4.41% 2 21.17%
(1) Remaining CFD positions (difference between 19.65% and 16.76%) probably closed later and shares transferred to Laxey / not included in scope of EBK‘s investigations (2) Laxey’s directly owned stake per 1.1.07 (Laxey disclosed a 22.89% stake per 16.4.07, i.e. they had to own 1.72% more directly) ©
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EBK Investigation – Overview on Laxey‘s Stake Building Banks 4.70% shares parked (2.2.07
3.4.07)
Credit Suisse 4.70% per 30.3.07
3.56% shares retrieved on 3.4.07 4.9% shares parked (End 06
4./5.4.07)
4.9% shares retrieved on 4. and 5.4.07
Laxey
5.4.07)
Man Financial 4.50% per 1.1.07 4.90% per 12.3.07
16.4.07)
Bear Stearns 4.01% per 1.3.07
4.9% shares parked (10.11.06 4.87% shares retrieved on 5.4.07
4.01% shares parked (1.3.07
2.29% shares retrieved on 16.4.07 1.14% shares parked since (Start 07
5.4.07)
1.14% shares retrieved on 5.4.07
16.76% shares retrieved per 16.04.07 + 4.41%1 directly owned
City Index 4.90% per 26.1.07
Remaining 2.89% probably retrieved later by Laxey
Cantor Fitzgerald 1.14% per 23.3.07 19.65% shares parked per 31.03.07
(1) Laxey owned 4.41% directly per 1.1.07 ©
Implenia | 11.03. 2008 | Page 15
EBK Investigation – Key Findings Laxey started building up its position in Implenia already at the end of 2006 (Laxey held 4.41% in Implenia per January 1, 2007) Laxey crossed first disclosure threshold (5%) at the latest on January 1, 2007 - 4.41% directly owned shares - 4.81% via CFDs1
9.22%
All Implenia shareholders who sold their shares during this period were deceived
Laxey clandestinely increased its position until end of March 2007 to > 20%
Laxey orchestrated their stake building through a complex network of financial institutions
Laxey’s use of CFDs to build up its stake has been revealed by EBK as clear violation of disclosing obligations provided by Swiss law
(1) CFDs signed with 2 counterparties per 1.1.07: 4.50% with Man Financial and 0.31% with City Index ©
Implenia | 11.03. 2008 | Page 16
Agenda
1. EBK Investigation – Background & Key Findings 2. EBK Investigation – Stakebuilding 3. EBK Investigation – Legal Consequences
4. Conclusion 5. Annex ©
Implenia | 11.03. 2008 | Page 17
EBK Ruling – EBK‘s Measures As a consequence of Laxey‘s violation of disclosure rules, EBK will: File a charge with the Federal Department of Finance (Fine of CHF 230-250m)
In addition, EBK could: File a lawsuit with the competent court based on Art. 20 Para. 4bis BEHG, entered into force on Dec 1, 2007 (suspension of voting rights for up to 5 years in case of breaching disclosure rules)
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Implenia | 11.03. 2008 | Page 18
EBK Ruling – What can Implenia do? (1/2) Legal possibilities for Implenia Seek a ruling to impose fines on the persons responsible for the breaches and on 1 the beneficial owners of the various Laxey vehicles Maximum fines based on Swiss law amount to approx. CHF 230-250m
2 Petition the authorities to seize part of Laxey‘s shareholding in Implenia to capture
Laxey’s illicit gains during its stake building
File a criminal charge with the competent cantonal criminal prosecution authorities 3 to charge Laxey and its acting directors with deliberate market manipulation Maximum sentence is a 3 year prison term Such an investigation and procedure also allows a seizure of Laxey’s shares
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EBK Ruling â&#x20AC;&#x201C; What can Implenia do? (2/2) Legal possibilities for Implenia, continued 4 Seek the suspension of all voting rights of Laxey by the competent court
Petition EBK to join these procedures (or file a claim on its own)
5
Intervene with the FSA to issue sanctions against Laxey and its directors for having engaged into criminal activity in Switzerland
Ask shareholders having sold their shares between 01.01.07 and 04.04.07 to transfer their damage claims against Laxey because of failure to notify and market 6 manipulation Implenia will off-set these claims with dividend payments to Laxey
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Implenia | 11.03. 2008 | Page 20
EBK Ruling – Implenia‘s Measures (1/2) Implenia‘s BoD considers the implementation of the following legal measures
9
Seek a ruling to impose fines on the persons responsible for the 1 breaches and on the beneficial owners of the various Laxey vehicles
9
2 Petition to seize part of Laxey‘s shareholding in Implenia
3
?
File a criminal charge against Laxey and its acting directors for deliberate market manipulation
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Implenia | 11.03. 2008 | Page 21
EBK Ruling – Implenia‘s Measures (2/2) Implenia‘s BoD considers the implementation of the following legal measures
4
9
Seek the suspension of all voting rights of Laxey
9
5 Intervene with the FSA
6
?
Ask shareholders to transfer their damage claims against Laxey; settingoff these claims with dividend payments to Laxey
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Implenia | 11.03. 2008 | Page 22
Agenda
1. EBK Investigation – Background & Key Findings 2. EBK Investigation – Stakebuilding 3. EBK Investigation – Legal Consequences
4. Conclusion 5. Annex ©
Implenia | 11.03. 2008 | Page 23
Conclusion 1) Laxey has broken Swiss laws and stock market rules 2) Shareholders of Implenia have been massively deceived and have lost money selling their shares on wrong information 3) Laxey facing the suspension of ALL their voting rights for 5 years 4) Laxey and their directors facing fines (CHF 230-250m) 5) We expect Laxey to come under scrutiny from the UK regulators (FSA)
Implenia BoD feels “fortified” to continue its battle against Laxey and will use ALL legal means to enforce/reinstate the rights of its shareholders and the company ©
Implenia | 11.03. 2008 | Page 24
Agenda
1. EBK Investigation – Background & Key Findings 2. EBK Investigation – Stakebuilding 3. EBK Investigation – Legal Consequences
4. Conclusion 5. Annex ©
Implenia | 11.03. 2008 | Page 25
EBK Investigation – Background (1/3) Detailed review on steps since end of March 2007 27.3.2007
Laxey holds 4.922% stake according to its requests for registration
04.4.2007
Laxey informs Implenia’s CEO that it holds more than 12% of Implenia’s shares
11.4.2007
Laxey discloses 12.226% stake (per 4.4.07)
17.4.2007
Laxey discloses 22.89% stake (per 16.4.07) It is impossible that Laxey built up its stake in this timeframe through share purchases on- and off-market
18.4.2007
EBK starts its investigation, i.e. immediately after Laxey disclosed its 22.89% stake
©
Implenia | 11.03. 2008 | Page 26
EBK Investigation – Background (2/3) 14.5.2007
Implenia sends the results of its analysis on Laxey’s clandestine stake building to EBK and asks EBK to start an investigation EBK conducts a thorough investigation on Transactions in Implenia shares (on- and off-market) from January 1, 2007 to April 30, 2007 Details on Laxey‘s (1) relationships with various financial institutions, (2) transactions executed in Implenia shares, (3) transactions in CFD positions Transactions of Swiss and European financial institutions in Implenia shares and their relationship/contracts with Laxey
7.12.2007
EBK confirms that an investigation is ongoing
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Implenia | 11.03. 2008 | Page 27
EBK Investigation â&#x20AC;&#x201C; Background (3/3) 12.12.2007
EBK decrees that Laxey has to disclose the crossing of a threshold through Contracts for Difference
24.1.2008
EBK decides to open a formal administrative procedure
31.1.2008
EBK sends the results of its investigations to Implenia and Laxey for comments
10.3.2008
EBK releases its ruling, finding Laxey guilty of breaching disclosure rules
Š
Implenia | 11.03. 2008 | Page 28
Annex – Examples of Laxey‘s Stake Building (1/4) Transaction in 740‘000 Implenia shares (simplified description) LAXEY
„Share level“
CFD Counterparty
LAXEY
Execution Broker
Bank am Bellevue
28.2.2007: Purchase order (via Instinet as clearing bank)
1
16.4.2007: Retrieving shares1
Broker
Instinet
1 1.3.2007: Delivery of shares
3 2
„CFD level“
LAXEY
Bear Stearns
1.3.2007: Parking / CFD Signing
1
Stake building
2
Parking of shares
3
Retrieving shares
1.3.2007: Laxey orders to transfer shares
2
(1) Only a portion of the 740‘000 shares (423‘512) have been retrieved by Laxey on 16.4.2007 ©
Implenia | 11.03. 2008 | Page 29
Annex – Examples of Laxey‘s Stake Building (2/4) Transaction in 37‘853 Implenia shares (simplified description) LAXEY
„Share level“
CFD Counterparty
LAXEY
1
17.1.2007: Purchase order
Execution Broker
Broker
Instinet
4./5.4.2007: Retrieving shares 3 2
„CFD level“
LAXEY 19.1.2007: Parking / CFD Signing
1
Stake building
2
Parking of shares
3
Retrieving shares
City Index
19.1.2007: Laxey orders to transfer shares
2
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Implenia | 11.03. 2008 | Page 30
Annex – Examples of Laxey‘s Stake Building (3/4) Transaction in 34‘916 Implenia shares (simplified description) LAXEY
CFD Counterparty
Execution Broker 1
„Share level“
LAXEY
1
23.3.2007: Purchase order
23.3.2007: Delivery of shares
Keijser
Neonet 1
5.4.2007: Retrieving shares
Broker
23.3.2007: Purchase order
3 2
„CFD level“
LAXEY 23.3.2007: Parking / CFD Signing
1
Stake building
2
Parking of shares
3
Retrieving shares
Cantor
23.3.2007: Laxey orders to transfer shares
2
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Implenia | 11.03. 2008 | Page 31
Annex – Examples of Laxey‘s Stake Building (4/4) Transaction in 2‘555 Implenia shares (simplified description) LAXEY
CFD Counterparty
Execution Broker 1
„Share level“
LAXEY
21-23.2.2007: Purchase order
1
21-23.2.2007: Delivery of shares
Keijser
Neonet 1
5.4.2007: Retrieving shares
Broker
21-23.2.2007: Purchase order
3 2
„CFD level“
LAXEY
Man Financial
28.2.2007: Parking / CFD Signing
1
Stake building
2
Parking of shares
3
Retrieving shares
28.2.2007: Laxey orders to transfer shares
2
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Implenia | 11.03. 2008 | Page 32