French regulators have fined Paul Singer’s Elliott Management Corp €16 million ($22 million) for insider trading saying that the hedge fund used material non-public information while trading shares of Autoroutes Paris-Rhin-Rhone SA in 2010, Elliott Management informed its clients earlier today, reports Saijel Kishan for Bloomberg. Elliott has said that it will appeal the Autorite des Marches Financiers decision and that the Elliott funds will not take a hit either from the fines (should it fail to appeal them) or from other costs associated with the ruling.

Elliott management Paul Singer

Elliott Management increased its position in APPR ahead of a major sale

The original allegation was that Elliott Management had used its knowledge of a pending deal with Eiffarie, a joint venture between Eiffage SA (EPA:FGR) and Macquarie Group Ltd (ASX:MQG), when it bought 430,000 shares of APRR, artificially boosting the company’s stock price and earning an additional €2.7 million, about $4 million at the time. Elliott ultimately sold its 13.7% stake in APRR to Eiffarie for €900 million. The AMF previously recommended a €40 million ($55 million) fine, making it a much larger fine percentage-wise than is normally levied against funds for insider trading.

The AMF has apparently back off the claim that Elliott Management manipulated the price of APRR stocks, but still maintains that it bought the additional shares because of the deal, while Elliott says that its traders following a long-term strategy that had been initiated long before the fund entered into negotiations with Eiffage SA (EPA:FGR) .

Elliott says no evidence its ‘Chinese Wall was breached’

“Despite an investigation which included extensive reviews of e-mails, audiotaped trading lines and interviews with witnesses, the AMF offered no direct evidence that Elliott’s Chinese Wall was breached,” Elliott Management said in the letter.

Clearly some individuals at Elliott Management knew about Eiffage SA (EPA:FGR)’s intention to buy the stake in APPR since they were negotiating the deal, but that’s not really the issue. Funds are supposed to have policies in place to compartmentalize such information so that traders can continue following long-term investment strategies while other units are making deals. The AMF has to prove that those policies were abused or ignored, which Elliott Management contends it has failed to do.

Even for a hedge fund as large as Elliott Management, which has $24 billion in assets under management, there’s no chance that a $22 million fine will go uncontested, not to mention that Singer wouldn’t want to let the accusations of insider trading stand, so we’re still probably a long way off from a final ruling.