SKAGEN and Kristian Falnes contest fine for breach of confidentiality in Q-Free case

*  Trondheim-based company Q-Free ASA is a global supplier of solutions and
products for Road User Charging and Traffic Surveillance. 

“Kristian Falnes has exercised sound judgement and his actions prevented a
large holding of Q-Free shares being sold before all market participants had
access to equal and updated information”.  So says Managing director of SKAGEN,
Harald Espedal, as portfolio manager Kristian Falnes refuses to accept a fine
for breach of confidentiality pursuant to the Securities Trading Act §3-4. The
matter will now likely be referred back to legal authority for further
consideration. 

The Securities Trading Act §3-4 deals with confidentiality and the proper
handling of information. The provision states that it is an offence to
distribute confidential information to unauthorised third parties. The core of
this case is whether, on 15 January 2009, the management of Q-Free was an
authorised party permitted to receive information that a market participant was
looking to buy a substantial number of Q-Free shares. The fund SKAGEN Vekst,
managed at the time by Kristian Falnes, did not trade shares in Q-Free in the
period in question or at all in the first quarter of 2009. Today the fund's
stake constitutes 5.1 percent (3 040 000 shares). SKAGEN and Falnes believe
that the laws and regulations with regard to the handling of confidential
information have been upheld and do not accept the fine imposed. 


Background
In January 2009, SKAGEN Vekst owned 3 506 000 shares, corresponding to 5.8
percent, in Q-Free. 
On 15 January 2009, Kristian Falnes was contacted by Handelsbanken Markets
which had been commissioned to buy a substantial holding in Q-Free, in which
SKAGEN Vekst was a shareholder. Q-Free was, at the time, in the final stages of
bidding for several large contracts, including one in Slovakia. Falnes was
concerned that there was unequal information in the market about the allocation
of these contracts. Falnes did not have any knowledge about the contract
allocation himself, and was therefore not in a position to assess whether the
buyer was trying to exploit the information. 

Falnes therefore contacted Q-Free, considering them to be the relevant party to
assess whether there was unequal information in the market regarding the
formation of the contracts. The crux of the case is whether this contact with
Q-Free represented a breach of the Securities Trading Act §3-4 which states
that it is an offence to disseminate confidential information to unauthorised
third parties. It is, however, legal to distribute information to authorised
third parties, even if the information is confidential. 

“I do not believe my actions were in breach of confidentiality pursuant to the
law or regulations. I therefore do not accept the fine of NOK 350,000 imposed
by Økokrim (the national authority for investigation and prosecution of
economic and environmental crime in Norway). At the time, there was reason to
believe that there may have been unequal information in the market concerning
the allocation of large contracts expected in the period around January 2009,”
says SKAGEN investment director and portfolio manager Kristian Falnes. 

Not common practice
On 14 January 2009, the Q-Free share price had fallen 15.8 percent from NOK
8.40 to NOK 7.10 after a substantial, and unusual, sale of Q-Free shares. On 15
January, when Handelsbanken Markets contacted Falnes, he was asked to sell a
large holding - all or nothing - for between NOK 9.00 and 9.50 a share. The
broker did not say who the commissioning party was. Falnes considered the offer
to be too low and not representative of Q-Free's worth. From the conversation,
Falnes came to understand that a large number of shareholders in Q-Free had
received the same confidential information during the opening hours of the
stock exchange. That in itself is not common practice. 

Safeguarding the integrity of the market
“In that particular situation I believed, and I still believe, that the
chairman of the board and the managing director of Q-Free were the right people
to contact in order to assess whether there was unequal information in the
market. I acted to safeguard the integrity of the market and in the interests
of the shareholders in SKAGEN Vekst. I also wanted to help prevent anyone
potentially profiting by using price sensitive information that was not known
to everyone in the market,” maintains Kristian Falnes. 

Q-Free contacted Oslo Stock Exchange on 15 January after having spoken to
SKAGEN. There was a brief suspension of trading and later in the day it was
announced that Q-Free was in the process of negotiating a contract with the
Slovakian authorities. The contract was the company's largest ever, with an
order value of NOK 450 million. 

Kapsch wanted to buy Q-Free
On the same day the company sent out a stock exchange report that there was a
large buyer of Q-Free shares in the market. Shortly thereafter it became known
that Q-Free's Austrian competitor, Kapsch, was the buyer of the holding in
question on 15 January. Kapsch was the bidder for the same Slovakian contract,
won by the consortium that Q-Free was a part of. Once news of the contract
allocation became known in the market, Kapsch had to raise the price offered
per share. 

From 15 January 2009 until the end of the same month, Q-Free announced
contracts of NOK 730 million in total. The order reserve from these contracts
was almost double the last published order reserve from the third quarter of
2008 of NOK 380 million. 

“Sound judgement” 
”SKAGEN Funds has thoroughly reviewed the case and believes that Kristian
Falnes exercised sound judgement. SKAGEN and Falnes do not agree with Økokrim's
reaction, which has been to impose a fine, and look forward to a legal
explanation for the many questions exposed in this case,” says Managing
director Harald Espedal. 

SKAGEN Vekst did not trade shares in Q-Free during the period in question or at
all in the first quarter of 2009. 

For further information, please contact SKAGEN Funds at +45 33 41 76 50 or
e-mail cje@skagenfunds.com 

With Kind Regards
SKAGEN Funds
Jens Elkjær, Managing Director, SKAGEN Funds Denmark. 
Christian Jessen, Communication Manager, SKAGEN Funds Denmark