Former EADS deputy chief executive detained by French authorities in insider trading probe news
17 June 2008

The delay of Airbus' A380 ''super-jumbo'' is having ramifications beyond airlines' bottom lines. Latest news is that former deputy CEO of Airbus parent European Aeronautic Defence & Space Co. (EADS) Jean-Paul Gut has been detained by French authorities on charges of insider trading.

EADS executives and shareholders allegedly sold millions of euros worth of EADS shares before a June 2006 announcement of delays for the 525-seater A380 due to wiring issues which led to the stock crashing 26 per cent in one day. The plane is now two years and three months behind schedule and cost overruns and associated penalties to airlines will cost EADS more than 4 billion by 2010.

The Paris prosecutor opened an inquiry in November 2006, and the Autorite des Marches Financiers (AMF), the financial markets authority, is also conducting its own investigation. Both investigations focus on what Airbus and EADS executives knew about difficulties on the A380 when they exercised stock options and sold shares before the disclosure of production delays.

Gut, who left the group in June 2007 after what EADS called "a divergence in views'', sold stock options for a total of 1.77 million ($2.74 million) between November 2005 and March 2006.

In a statement, Gut's lawyers said the "sale, which was part of the constant practice of exercising stock options, took place in strict respect of internal EADS rules and regulations and during authorized periods."

The lawyers, Yves Repiquet, Diane Pasturel and Eric Dezeuze, denied their client had engaged in insider trading and called for him to be heard "as soon as possible" by investigating judges.

Gut was cited in press reports earlier this year as one of 17 individuals suspected of insider trading by French markets regulator AMF in a report sent to the Paris public prosecutor. The others include Airbus CEO Tom Enders, chief salesman John Leahy, head of programs Tom Williams and EADS's North American head Ralph Crosby.

At the end of May, former EADS co-chief executive Noel Forgeard was placed under formal investigation by investigating magistrates on suspicion of insider trading. He was later released on bail.

Both Gut and Forgeard left EADS with handsome severance packages. Gut stepped down with 2.8 million ($4.33 million), representing two years of salary. Forgeard was ousted with an 8.5 million ($13.14 million) package.

Meanwhile, the company defended its record for transparency yesterday after two US law firms fired opening salvos through shareholder lawsuits, seizing on insider trading investigations in Europe.

New York law firm Dreier LLP said it had filed a lawsuit in US District Court in New York last week alleging the Airbus parent company and its controlling shareholders committed securities fraud and insider trading related to delays in delivering the A380 in 2005-06.

A similar lawsuit filed by San Diego-based firm Coughlin Stoia alleges that EADS falsely assured investors that it would overcome technical problems related to the A380 and failed to disclose "insurmountable delays" in manufacturing the super-jumbo.

The second suit, filed along with law firm Labaton Sucharow LLP, alleges violations of federal securities laws by EADS or its executives.

Both lawsuits seek class-action status.


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Former EADS deputy chief executive detained by French authorities in insider trading probe