In a judgement that will shake the worlds of fashion and finance, a French court yesterday found the merchant bank, Morgan Stanley guilty of deliberately undermining the share price of the world's leading luxury goods company.
The Paris commercial court ordered the American bank to pay €30m (£21m) damages for publishing unfairly negative investment advice on Louis Vuitton Moët Hennessy (LVMH) to boost the fortunes of its rival, Gucci - a Morgan Stanley ally and client.
The case turned partly - but not entirely - on share advice given by Claire Kent, a British-based analyst for Morgan Stanley, who is one of the world's leading commentators on the luxury goods sector.
The French company claimed in November that Morgan Stanley's stock market advice to small investors in 1999-2002 had been a "concerted campaign of aggression" intended to help Gucci and denigrate LVMH.
This is the first case of its kind in Europe but it closely resembles allegations made in the United States last year that leading commercial banks - including Morgan Stanley - routinely cross ethical boundaries between objective stock market analysis and promotion of the bank's other interests.
The Paris court ruled that Morgan Stanley had committed a "serious fault" which caused "considerable moral and material damage" to LVMH. It awarded interim damages and appointed an assessor to decide whether Morgan Stanley should compensate LVMH for the misleading information.
Morgan Stanley announced that it would appeal to protect its reputation and the right of equity analysts to publish critical judgements.
At the November hearing, the bank had rejected the charges and accused LVMH of seeking revenge for its defeat in the "handbag war" for the control of Gucci in 1999-2002, in which the American bank had played a leading role.
Patrick Ponsolle, head of Morgan Stanley in France, described yesterday's judgment as "a decision without substance which is totally unjustified". One of the bank's lawyers, Bruno Quentin, called it "a piece of science fiction".
LVMH argued in November that Morgan Stanley's actions should be seen as part of a "system" which had already been uncovered by legal action in the US. Nine banks, including Morgan Stanley, had agreed - without admitting responsibility - to a $1.4bn (£75m) out-of-court settlement of alleged violations of the "firewall" between their market analysis and merchant banking divisions.
LVMH's lawyers argued that it was reasonable to assume that Morgan Stanley's London office, in which Ms Kent worked, was also under pressure to produce market analysis which helped the bank's other activities and major clients.
LVMH produced documentary evidence of 178 alleged occasions between 1999 and 2002 - many, but not all, involving Ms Kent - when Morgan Stanley had produced "flagrantly biased" comments on LVMH.
The bank's motivation was clear, LVMH said. It had advised another French-based company, PPR, in its ultimately successful attempt to snatch Gucci from under the nose of LVMH at what seemed an excessively high price to many analysts.
It said it was in Morgan Stanley's interest to boost the market price of Gucci. And the best way to do so was to encourage investors to lose confidence in the luxury-goods market leader, LVMH.