Goldman Sachs says its investment in cable cartelist did not amount to control

28 March 2017. By Mari Eccles.

The Goldman Sachs Group's relationship with cablemaker Prysmian was that of a "pure financial investor" and the bank shouldn't be blamed for the Italian company's involvement in a cartel, a lawyer for the bank told EU judges this morning.

Representing the investment bank in the EU's lower-tier General Court, lawyer Jonas Koponen said the type of funds held by Goldman Sachs in Prysmian were "investment vehicles" and that the bank had been an investor, not a parent company.

Koponen argued that because the New York-based bank didn't have "decisive influence" over Prysmian, the court should order that a 37.3 million euro fine that the European Commission imposed on it in relation to the cartel be overturned.

Today's court hearing into the 2014 fine will be of interest to private investors, who are seeking to find out whether they can be found liable for the anticompetitive behavior of companies they put money into.

It is well established in case law that parent companies can be found liable for the cartel activity of their subsidiaries, because of the level of control the relationship entails. But it is rare for financial investors to shoulder the blame.

Koponen argued that case law shouldn't be extended to cover relationships like the one between Goldman Sachs and Prysmian.

The lawyer said that one of the principle reasons for the bank's investment in the manufacturer was its "world class management," arguing that there had been no need for the bank to exert any oversight. It ws the company's management, Koponen said, that guided "Prysmian's conduct on the market" — not Goldman Sachs.

Today's case stems from a commission decision to fine Prysmian 104.6 million euros for its role in a nearly 10-year long cartel on the market for underground cables.

The commission fined Goldman Sachs 37.3 million euros because a fund the investment bank managed, GS Capital Partners, had purchased a stake in Milan-based Prysmian.

The regulator ruled that the investor had exerted a "decisive influence" over Prysmian during the time in which it held its stake, which covered nearly four years of the cartel.

Tiremaker Pirelli, which owned Prysmian during the first six years of the infringement, was also fined "jointly and severally" by the commission and is appealing the decision at the same court.

'Decisive influence'

Defending the commission's actions today, lawyer Josephine Norris Usher said that Goldman Sachs' investment was "not a passive holding of shares." She said that the bank had the power to nominate members of Prysmian's board of directors and it "exercised that right, to ensure it was represented."

"This wasn't just rubber-stamping," Norris Usher said, pointing to the voting rights the company enjoyed on the board.

Judge Mariyana Kancheva questioned the bank on this point, asking if any other company had as much representation as Goldman Sachs, even at times when the bank's investment in Prysmian had decreased.

"Weren't other shareholders too small and dispersed to block Goldman Sachs?" she asked.

Koponen said that it was "true that Goldman Sachs funds represented the largest block," but the commission's "unprecedented way" of applying the legal presumption of "decisive influence" was flawed.

In case law, such influence is established by the amount of capital a parent company holds, not its voting rights, Koponen said.

The precedent for this legal presumption comes from a case involving Dutch company AkzoNobel, which established the decisive influence of parent companies that own 100 percent of capital in a subsidiary.

In written submissions to the commission, the bank argued that the funds it held in Prysmian during the time of the infringement were far less than 100 percent — often between 84 percent and 91 percent.

Goldman Sachs argued that the regulator "has never" applied the presumption of "decisive influence" in a case involving an actual capital holding of less than 93 percent.

If the court sides with the commission in its claim that Goldman Sachs had decisive influence over Prysmian, it would be "removing the line established by case law and create legal uncertainty," Koponen said.

But in its written submissions, the commission said that the fact Goldman Sachs held 100 percent of the voting rights implies a degree of influence over the conduct which was comparable to that which it would have had if it had owned 100 percent of Prysmian's capital.

Norris Usher, for the commission, said "legal, organizational and economic links subsisted between the two, which satisfied the commission that the decisive influence presumption could be applied."

She said the regulator was not "departing from the presumption" when making its finding, which it has based in fact. Norris Usher pointed to evidence which suggested decisions couldn't have been made by Prysmian without input from a Goldman Sachs representative.

"It is substance over legal form which must prevail in this case," she said.

This morning's hearing saw Prysmian intervene on the side of the commission, despite its own pending appeal against the regulator's decision.

Claudio Tesauro, for the Italian company, said liability "shouldn't vary according to the sector in question," arguing that the financial services industry shouldn't be exempt from the presumption of "decisive influence."

"Can Goldman Sachs hold [the company] for more than three and a half years without controlling the subsidiary? It's not credible," Tesauro said.

Passive vs. active

The tribunal's presiding judge, Anthony M Collins, picked up on a previous comment by Koponen, who had said that the principle aim of the bank's investment was to "unlock the potential" of Prysmian.

"The implication in saying Goldman Sachs will 'unlock the potential' of Prysmian is that it will play an active role in the management of the company," the judge said. "Isn't that distinct from a passive investor?"

Koponen responded by reiterating that the main aim of the investment had been to provide equity, not to manage Prysmian.

Collins was dissatisfied with this answer. "I asked if [providing equity] was the only role. You're saying it's the principle role but you're not saying it's the only role," Collins said.

The case number is T-419/14 Goldman Sachs v Commission.

	Eliot Gao