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Alierta faced a series of problems after taking over at Telefónica, most notably
charges of insider trading at Tabacalera, which he categorically denied. In 2002 a
nine-month investigation, which also focused on Alierta's wife and nephew,
indeed found evidence of such trading while Alierta had been leading Tabacalera.
The charges were especially important because no senior executive in Spain had
ever been put on trial. In addition to the official government investigation a
Spanish consumer group representing 15,000 bank customers and stock-market
investors filed a lawsuit against Alierta.

The charges referred back to 1997, when Alierta and his wife had formed an
investment company (Creaciones Baluarte SA) that they later sold to their 28-
year-old nephew, Luis Placer. The investment company purchased a large
number of Tabacalera shares immediately preceding the purchase of Havatampa
and the subsequent rise (decided by Alierta himself in order to align Spanish
tobacco prices with the EU average) in tobacco prices, both of which led to an
increase in the value of Tabacalera shares. To buy the stock, Alierta and his wife,
were awarded a 400 million-peseta (2ǯ400ǯ000 Euro) loan from Banco Urquijo
SA, where Alierta had previously held a high management position for more than
a decade. In early 1998 the investment company sold these shares at a great
profit as Tabacaleraǯs stock more than doubled from the day before the first
shares were bought and the last shares were sold, compared with a 37 percent
increase in Spainǯs benchmark IBEX 35 index. Alierta testified that he had
nothing to do with the purchases and that the Havatampa acquisition and the
price increase had no effect on Tabacaleraǯs share price. Placer told the court the
decision to invest in Tabacalera shares was made by a professional fund
manager.

Alierta Dzseverely damaged the general interest, by breaching the trust of

economic agents and the transparency and orderly functioning of the stock
market,dz Alejandro Luzo (anticorruption prosecutor) said in his opinion filed
with the court.

The CEO of Tlefonica answered: DzI didnǯt buy one share of Tabacalera, either
directly or indirectly, in 1997.dz He testified that the charges were the result of a
prosecutor that Dzdid not properly understand the functioning of stock markets.dz

Alierta was acquitted on 17 July 2009 after a final appeal at the Spanish Supreme
Court on the basis of the statute of limitations (too much time had elapsed from
the events in question for criminal charges to be filed).

Î

1. What are the main transactions that took place? What are the issues with
each?
2ǥ.
*


One of the main goals of Corporate Governance practices is to ensure the

accountability of employees vis-à-vis their actions in a certain company. We
observe that no accountable was found in the p resent case in not one, but three
different companies (Tabacalera, Banco Urquijo SA and Creaciones Baluarte SA).

It is obvious that a number of best-practices ware broken when the Tabacalera

deal was made, it is however unclear if the fraud was willingly put together by
Alierta himself or if someone else used the information to come up with the
investment scheme. However important the direct intention may be, the
evidence points to the fact that whomever planned the investment was the
beneficiary of privileged information. The leakage of information is in this case
the principal governance default. Coupled with a certain Dzfacilitydz of obtaining a
very large short-term loan and with a transaction amongst family members, this
leakage of information formed chain of severe governance problems that led to
the results described above.

Even if the literature classifies the cases of Insider trading as extremely hard to
prove, difficult to indict and laborious to research, what we observe in the Alierta
case is not a lack of evidence that lead to the complete acquittal, but a rather
frustrating technicality.

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