Jowdat Waheed was sharing a drink with his old mining colleague Bruce Walter on a warm day in July, 2010, when the conversation allegedly turned to the future of Baffinland Iron Mines Corp., a small Toronto company that had secured a remarkably rich iron ore find on Baffin Island.
Regulators now allege that casual conversation led to a takeover bid for Baffinland by two men that was based on confidential information Mr. Waheed had received as a consultant to the mining company a few months earlier.
In documents released Monday, the Ontario Securities Commission accused Mr. Waheed and Mr. Walter of illegal insider trading, alleging they profited from inside information through the prolonged takeover battle which ended in them acquiring a 30-per-cent interest in Baffinland. Mr. Waheed also faces allegations of insider tipping – sharing corporate information that had not been publicly disclosed.
Mr. Walter is a legend in the mining world and a renowned deal maker. He played a role in the formation of Barrick Gold Corp. in the 1980s while at Horsham Corp., helped Ian Delaney acquire Sherritt International Corp. in 1990 and moved on to a variety of far-flung projects, including the creation of FNX Mining.
Mr. Waheed worked with Mr. Walter at Horsham and later at Sherritt, where he became chief executive officer before stepping down in 2009 for family reasons.
Both vigorously denied the OSC allegations. In statement issued by their company, WW Mines Inc., they said: "The allegations made by [OSC]staff are completely without merit and will not withstand scrutiny by a hearing panel of commissioners." They added that they "intend to defend this proceeding vigorously and to seek complete vindication."
"To the best of [WW Mines']knowledge, no staff of any securities commission in Canada has ever initiated enforcement proceedings in circumstances analogous to these," they added.
The OSC case centres around Mr. Waheed's role as a consultant with Baffinland from Feb. 18, 2010, to April 30, 2010.
Baffinland had acquired the Mary River deposit years ago but lacked the resources to develop the site, considered the largest and richest iron ore deposit in the world. Throughout 2010, Baffinland was in discussions with ArcelorMittal about a joint venture to develop the site, but never confirmed publicly that it was negotiating with the global steel giant.
Mr. Waheed gained extensive knowledge about Baffinland's plans and its dealing with Arcelor through his consulting work, the OSC alleges. The information included financial models, royalty rates, cost estimates and tax issues.
After his consulting contract ended, Mr. Waheed and Mr. Walter formed Nunavut Iron Ore Co. in August, 2010, and acquired a stake in Baffinland on Sept. 9 for around 60 cents a share.
Nunavut launched a bid for Baffinland on Sept. 22 for 80 cents a share. Arcelor countered with an offer on Nov. 12 at $1.10 a share. The takeover ended on Jan. 14, 2011 with both sides acquiring Baffinland in a joint bid for $1.50 a share.
"Nunavut obtained the opportunity to develop the Mary River property with ArcelorMittal at the expense of Baffinland shareholders," the OSC alleges. Nunavut also benefited by receiving a substantial gain on its initial investment, the commission alleged.
The OSC's case won't be easy.
A Baffinland directors' circular dated October 7, 2010, stated Mr. Waheed's consulting relationship with Baffinland and mentioned he had private information about a company project. The OSC had that information when it struck down Baffinland's poison pill, clearing the way for Nunavut's bid.
Furthermore, on Aug. 31, 2010, Baffinland CEO Richard McCloskey told the publication Mining Weekly that his firm was currently in talks with potential strategic partners and added: "We are talking to large mining companies. We are also talking to European steel makers." However, no specific company names were provided.