On 13 December 2024, the Enforcement Committee of the Autorité des Marchés Financiers (AMF) sanctioned an American investment fund and its manager for a total of 10 million euros, for price manipulation during an IPO on the Nasdaq.[1]

The fund, EcoR1, specialized in investments in small, listed biotech companies, based in San Francisco, USA, whose main shareholder is its founder.[2]

In June 2019, Innate Pharma, a French biotech company specializing in immuno-oncology dedicated to improving cancer treatment and listed on Euronext Paris, announces its intention to launch an IPO on the Nasdaq in the United States, through a public offering of American Depositary Shares (ADSs) denominated in US dollars.[3] Such IPO was announced on 7 October 2019 and the company explained that the offer price would be determined on the basis of the volume-weighted average closing price of Innate Pharma shares on Euronext Paris during the trading sessions of 10, 11, 14, 15 and 16 October 2019.[4]

EcoR1, which had been an Innate Pharma shareholder since 2018, sold Innate Pharma shares during these five sessions and subscribed to Innate Pharma ADSs on 17 October 2019, the day of the company’s listing on the Nasdaq.[5]

From 10 October 2019, EcoR1 on the one hand issued orders with a very low limit price, enabling sales to be executed at the best buying limits (aggressive selling)[6], and on the other hand sold a large number of shares, in excess of the average daily volume traded on the market, during the settlement of the closing fixing, resulting in downward variations in the closing price of each sequence.[7] Aggressive sales and sales made during the settlement of the closing fixing represented between 85.2 and 100% of all sales made by EcoR1 over this period.[8]

At the end of these five sessions, EcorR1 was, consequently, the most important subscriber of Innate Pharma ADSs on the Nasdaq, benefiting from a subscription price equal to the weighted average of the five closing prices over the five sessions, reduced by a favorable discount since Innate Pharma’s share price had fallen significantly.[9]

The Committee found that the transactions carried out by EcoR1 on Euronext Paris, which had the effect of lowering the closing price of Innate Pharma shares over the five trading sessions and consequently lowering the subscription price of the ADSs on the Nasdaq, constituted price manipulation by setting the price at an abnormal or artificial level, and resulted from the sale of shares at the time of the market close.[10]

However, the Committee dismissed the charge of price manipulation through a dominant position.[11]

As a result, the Committee found that EcoR1 and its CEO, who took part in the decision to carry out activities on behalf of the legal entity concerned, were in breach of their obligations.[12] They are respectively fined to 7 000 000 euros and 3 000 000 euros.[13]

The Committee also found that EcoR1 had failed twice to comply with its reporting obligation, first upwards on 7 January 2019, following the acquisition of shares, and then downwards on 11 October 2019, following the sale of shares, exceeding the 5% threshold for holding Innate Pharma’s capital and voting rights.[14]