Insider trading at large publicly traded corporations makes news headlines and is the stuff of Hollywood movies. Less talked about is Canadian and Ontario corporate laws prohibiting insider trading in privately held corporations.
Under section 131 of the Canada Business Corporations Act (“CBCA”) and section 138 of the Ontario Business Corporations Act (“OBCA”), an “insider” will be liable for damages resulting from the purchase or sale of the securities of a private corporation if the insider had, or used, confidential information that would reasonably have affected the value of the corporation’s securities if the information had been generally known. The insider is also liable to the corporation for any gains made by the purchase or sale. Insiders include the private corporation or its affiliates as well as officers, directors and employees of the corporation.
The laws are a little different in the OBCA and CBCA, but both apply to the purchase and sale of securities of private corporations. So even smaller, private corporations and their shareholders need to be aware of these laws.
Bottom line, whether your shares are public or private, trades based on confidential information can be “insider” trades resulting in liability.