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Securities Regulation - INSIDER TRADING - Tipping

Thursday, December 22, 2016 @ 7:00 PM  

Appeals by Finkelstein, Azeff, Bobrow, Miller and Cheng from a decision by the Ontario Securities Commission. Finkelstein was a corporate lawyer with Davies Ward Phillips & Vineberg LLP (DWPV) and longstanding friend of his investment advisor, Azeff. Azeff and Bobrow were longtime friends who worked closely together as investment advisors for CIBC. Miller was an experienced investment advisor with TD who worked with Cheng. The OSC alleged that Finkelstein provided material non-public information to Azeff regarding three corporate transactions he worked on with DWPV as lead counsel. The OSC alleged that Azeff passed on the information, directly and indirectly, to the other appellant investment advisors, leading to large volume trading of the shares of the companies mentioned. An OSC panel concluded the appellants each passed along material non-public information, other than in the necessary course of business, contrary to s. 76(2) of the Securities Act. The four investment advisors were also found to have engaged in insider trading and acting contrary to the public interest. The appellants received administrative penalties of $150,000 per violation, plus costs, and various bans and prohibitions. The appellants appealed the OCS panel’s determination of liability and the resulting sanctions.

HELD: Appeals by Finkelstein, Azeff, Bobrow and Miller dismissed; appeal by Cheng allowed. There was direct and circumstantial evidence supporting the panel’s conclusion that Finkelstein tipped Azeff by providing material non-public information regarding the corporate transactions at issue. Given the personal and work relationship between Azeff and Bobrow, and their conduct in respect of the transactions at issue, it was reasonable for the panel to conclude that information was shared between one another. In the case of Miller, it was reasonable for the panel to conclude that he ought to have known that the information he received emanated from an insider. However, unlike Miller, the facts did not support the finding that Cheng ought to have known the information he received regarding the impugned transaction originated from an insider. The panel made factual errors regarding the nature of the relationship between Cheng and Miller, and the information conveyed by Miller to Cheng. The findings regarding Cheng were unreasonable and were set aside. Otherwise, no procedural unfairness was established with respect to the panel’s liability decision. The sanctions imposed were not excessive. Although Finkelstein was not a registrant under the Act, his degree of responsibility was not appreciably different from the other appellants given his access to the type of information the Act sought to prohibit trading on. There was no principled basis for interference with the sanctions imposed.