In a just-released decision, the Ontario Securities Commission found that a number of individuals engaged in insider trading, acted contrary to the public interest, and misled the Commission during the course of an investigation. It marks a win for Staff of the Commission after a series of high-profile failures by North American securities regulators to secure insider trading convictions.

Background and Insider Trading Findings

Eda Agueci was an executive assistant at GMP Securities L.P. In that position, she had access to material non-public information both on her employer’s computer system, and by overhearing deal team conversations by virtue of sitting near the deal team in an open concept office.

The Commission found that Ms. Agueci had access to and knowledge of material non-public information related to a number of different transactions. The Commission found that Ms. Agueci advised associates and acquaintances of that information, who then made large, well-timed trades shortly after their conversations with Ms. Agueci. Agueci and her acquaintances frequently earned significant profit in short periods of time from those trades.

The Commission had evidence before it of calls and meetings between Agueci and her acquaintances, as well as the well-timed trades that followed. Although the Commission lacked evidence of what, specifically, Agueci had communicated during those conversations, whether material non-public information or otherwise, the Commission concluded that given the pattern of conduct and other surrounding circumstances, it was entitled to draw an inference that during their interactions, Agueci had communicated material non-public information. The Commission found that her acquaintances then used that information in deciding to carry out their trades.

Further, the Commission found that given Agueci’s position as an executive assistant at GMP, her acquaintances knew or ought to have known that she was in a special relationship with the companies about which she was providing the information.

The inferences drawn by the Commission are not altogether different from those recently drawn by the Alberta Securities Commission in an insider trading case. Those inferences were later overturned by the Alberta Court of Appeal in Walton v Alberta (Securities Commission), 2014 ABCA 273.  Leave to appeal to the Supreme Court of Canada is currently being sought by the Alberta Securities Commission in that case.

Misleading the Commission During a Compelled Interview

One other interesting finding arose with respect to the offence of misleading Staff during compelled examinations. In particular, one of the respondents in the case, Dennis Wing, made misleading or untrue statements during his compelled examinations. However, Mr. Wing had later corrected certain of his misleading statements when confronted with evidence that contradicted him. Agueci was found to have similarly tried to correct misleading statements after being confronted with contradictory evidence.

The Commission indicated that correcting a misleading statement does not negate the fact of misleading if the statement was made intentionally, and when the correction only comes after being confronted with contradictory evidence. Further, Wing had argued, somewhat inventively, that Staff knew the answer to certain of the questions it asked, and thus when Wing made the misleading statements, Staff were not in fact misled. The Commission stated that it did not make sense that an answer could not be misleading if Staff already had information to show that an answer was misleading, because “… whether a respondent is truthful or not does not depend on the knowledge of Staff.”

This suggests that those who gamble by answering Staff’s questions in certain ways on the assumption that Staff does not already know the answer are playing a dangerous game.  Later correcting an incorrect answer may be insufficient to escape liability for the offence of misleading Staff, if Staff or the Commission believes that the correction is only being made after being confronted with evidence to the contrary.

Conclusion

It remains to be seen what this case may signal, if anything, for the prospects of future insider trading prosecutions. Certainly there have been numerous recent setbacks for regulators seeking to prosecute insider trading. Those regulators may be very pleased with this decision. However, the ultimate say on the obstacles facing regulators whose insider trading cases depend on circumstantial evidence and inferences may yet come from the Supreme Court of Canada, if it grants leave to appeal in the Walton decision, mentioned above.

We note that Bennett Jones LLP senior associate, Usman Sheikh, a former senior counsel with the Commission, was part of Staff’s legal team in this matter, including while employed with the firm. This update was prepared by other members of the firm’s Securities Litigation Practice Group.