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Exteriors of the Telus Tower located at 25 York At. in downtown Toronto, photographed January 24 2011.

Fred Lum/Fred Lum/The Globe and Mail

The British Columbia Securities Commission has denied Telus Corp.'s request to hold a hearing to probe its regulatory complaints about a U.S. hedge fund that is bent on defeating its share consolidation plan.

The Vancouver-based telecommunications company filed a complaint with the BCSC earlier this week alleging that Mason Capital Management LLC was in potential "breach" of securities laws and engaging in conduct that is "contrary to the public interest."

Specifically, Telus wanted the regulator to force Mason to disclose more information about its holdings in Telus and to reveal to other shareholders how much money it could make by defeating the proposal, which will be put to a shareholder vote next week.

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BCSC executive director Paul Bourque, though, informed Telus late Wednesday that its complaint about Mason provides "no basis" for an application to the commission under the relevant section of the Securities Act.

"Based on the information you provided me, Mason's circular clearly complies with the CSA's (Canadian Securities Administrators) disclosure requirements," Mr. Bourque wrote in his letter to Telus's lawyers.

New York-based Mason, which controls about 18.7 per cent of Telus's common voting shares, opposes the company's proposal to convert each non-voting share into a common share on a one-for-one basis. It immediately applauded the BCSC's decision and reiterated its argument that the voting class deserves a premium because those shares have generally cost more to buy in recent years.

"We are pleased that the British Columbia Securities Commission has confirmed our view that Telus's complaint was entirely without merit," said Michael Martino, Mason's principal and co-founder, in a statement.

"That Telus would bring such complaint in the first place shows how desperate Telus management is to divert shareholders attention away from the fundamental flaws in their misguided proposal."

As the clock ticks down to Telus's annual meeting on May 9, the proxy battle between Telus and Mason continues to heat up. Given that Telus's plan requires the approval of two-thirds of the votes cast by each class of shareholder, the proposal faces the risk of defeat if other investors accept Mason's arguments or fail to vote altogether.

For its part, Telus has accused Mason of being "an opportunistic" investor given that it has less than a 0.25-per-cent net economic interest in the company because of its short position in Telus shares.

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That's because the money manager is using a trading strategy that takes advantage of the historical price gap between the two share classes. If it is successful in blocking the proposal, Telus's non-voting shares would likely fall, relative to the voting shares, allowing it to make a profit. (It has fully disclosed both its long and short positions as required by law.)

While the BCSC declined to hold a hearing on Telus's complaints, it did signal that securities regulators have the issue of "empty voting," which occurs when there is voting without economic interest, squarely on their radar.

"The Commission and its CSA colleagues are examining the issue of empty voting, and the related issue if hidden ownership, as policy matters," added Mr. Bourque.

"In this case, I observe that with the significant media attention, there is considerable disclosure about the nature and extent of empty voting.

"This is not a situation where Mason, despite technical compliance with the legislation, is circumventing requirements that Telus shareholders would reasonably expect to have applied to Mason. When there is no contravention of the legislation, intervention in the capital markets must be rare if participants are to have any expectation of certainty."

A Telus spokesman said the company is pleased the BCSC is committed to examining the issue of empty voting. "We believe that securities regulators need to modernize their regulatory framework to protect issuers and investors from potential abuses of empty voting and hidden ownership such as that which Mason is currently pursuing in its trading strategy in Telus shares," said Shawn Hall.

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Stephen Erlichman, executive director of the Canadian Coalition for Good Governance, declined comment on Telus's proxy fight with Mason, but said regulators should be cracking down on empty voting in general. "If this going to be empty voting, yeah, the regulator should be intervening here," he said in an interview late Wednesday.

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