H2O scandal: the stock exchange police fined a record 93 million euros

Thousands of French are still trapped after the Financial Markets Authority’s (AMF) Sanctions Commission announced its decision on asset manager H2O AM, which has been in turmoil for two years, forcing it to freeze seven of its funds. protectors. And yet the bill is high for the fallen star of London management, which is partly owned by Natixis IM and its managers.

AIF judge fined the company a record amount of 75 million euros. Bruno Crastes, the general manager of H2O AM, was fined the maximum amount of 15 million euros provided by law against an individual. As for investment manager Vincent Chailley, he will have to pay €3 million to the Treasury.

The amount of these penalties is equal to the amount requested by the prosecutor during the hearing of the defendants at the end of November.

Disciplinary sanctions

All these fines are accompanied by disciplinary measures. H2O comes with a rebuke to AM. Bruno Crastese, for his part, is prohibited from acting directly or by delegation as a manager for a period of five years, and is also prohibited from “acting as a director of a collective investment company or a director of a management company of another Member State of the European Union with a branch.” Provision of services managing one or more UCITS or alternative investment funds in France”. Vincent Chailley, for his part, receives a reprimand in addition to his sentence.

The record for the highest fine so far (32 million euros) belongs to Amundi. The euro was imposed on the STOXX 50 for price manipulation in the futures market.

All complaints reported by the AIF Board of Directors have been satisfied. The AIF judge found that H2O AM had invested on behalf of some UCITS in financial securities issued by companies of the Tennor group linked to sulphurous German businessman Lars Windhorst, but these were not eligible for fund assets. And for these three reasons.

First, the lack of liquidity of these financial instruments weakened the UCITS’ ability to meet shareholder return requirements, and H2O AM did not adequately consider this liquidity risk when investing.

Since then, these financial securities were not rated by a rating agency or issued by an issuer rated by a rating agency, so they were not included in the scope of the investment policy defined by the fund’s prospectuses.

Finally, H2O AM did not have sufficient data to reliably evaluate these financial instruments.

Catch rate

The Executive Committee also considered that H2O AM did not comply with the investment ratio known as the “retention ratio” applied to these UCITS because some of them held more than 10% of the debt securities issued by the same issuer of the Tennor group.

The market watchdog also decided on investments made as part of transactions consisting of immediate purchase and forward sale of securities at a pre-agreed date and price (transactions known as “buy and sell”). . The AIF judge considered that H2O AM carried out these transactions with financial securities issued by Tennor group companies, even though they were not eligible for UCITS assets.

Order of battle

This decision may lead to other legal consequences. It is crucial for unit holders whose money is blocked in frozen funds invested in Tennor group’s illiquid bonds. The latter, who have put themselves in a state of war, intend to rely on this conviction to obtain judicial damages. The products were sold by wealth management advisers (CGP), banks and insurers, particularly in life insurance contracts.

This decision of the Sanctions Commission can be appealed against H2O AM and its directors.