Sex Shocker Socks Stock

There are many reasons why a firm's share price might suddenly plummet. Having your chairman arrested on suspicion of being a pimp is not one that crops up too often.

But that's exactly what happened late last week to French broadband service provider Iliad (Euronext: ILD).

Its stock dipped by more than 10 percent after its chairman, founder, lead shareholder, and major strategist, Xavier Niel, was arrested for alleged involvement in a prostitution racket and alleged tax fraud.

A year-long investigation into money laundering by the French prosecutor's office found that Monsieur X. Niel had financed three peep shows suspected of housing an illegal sex-for-sale operation.

Offering value-added services appears to be a speciality of Niel's. Bundling VOIP and TV over DSL with high-speed access has been at the heart of Iliad's successful broadband operation, called Free. It is the second most popular broadband player after France Telecom SA (NYSE: FTE) with 635,000 customers at the end of March (see Iliad Reports 2003 Revenues).

That success led to an IPO in January that saw the company's share price rocket by 30 percent to €21.25 on its debut, valuing the service provider at more than €1 billion, or US$1.25 billion at late January's exchange rates (see Investors Go Mad for Free Shares).

But, as the visitors to the French peep shows must surely know, what goes up usually comes down, and after Niel's arrest Iliad's share price slumped by more than 10 percent to close on Friday at €18.48. Today the share price stands at €17.65.

Iliad has confirmed that Niel is being held by the French police, but notes that the issue is not related to Iliad or any of its businesses. A spokesman told Reuters that the service provider could operate as normal without its founder as he no longer has a day-to-day operational role.

— Ray "The Trojan Horse" Le Maistre, International Editor, Boardwatch