The Ontario Securities Commission's probe of Bay Street lawyer Mitchell Finkelstein, accused of tipping an insider-trading ring, was marked by unexplained delays that left the regulator scrambling before a statute of limitations expired last year, his lawyers allege.
Lawyers for Mr. Finkelstein will argue on Thursday at an OSC hearing that his case should be thrown out. In written arguments, Mr. Finkelstein accuses the OSC of dragging its feet during an investigation "rife with lengthy and unexplained delays."
Mr. Finkelstein argues his case should be stayed because the OSC didn't give him enough time to respond to the allegations before they were made public last November. He argues the OSC was unfair to him because it was facing a five-year deadline to issue allegations related to trades leading up to the 2004 takeover of Masonite International Corp.
The OSC's conduct "ought to offend a community observer's sense of fair play and decency," Mr. Finkelstein's submission says.
Mr. Finkelstein faces accusations that he tipped friend Paul Azeff, a former investment adviser at CIBC World Markets Inc., about six pending takeover deals involving clients of Davies Ward Phillips & Vineberg LLP. Mr. Finkelstein was a partner at the firm until his resignation after the OSC unveiled its allegations, none of which have been proved.
According to his submission, it was in January, 2005, that the OSC first looked into "suspicious trading activity" before the December, 2004, news of a takeover of Masonite by U.S. private equity firm Kohlberg Kravis Roberts & Co . The OSC asked Masonite to reveal its lawyers, and it identified Davies, Mr. Finkelstein, and others. The OSC then let the matter drop, the submission said.
In August, 2007, the OSC began investigating Howard Miller, then an investment adviser with TD Waterhouse Group Inc. in Toronto, the submission says. By October 2007, the OSC had identified alleged "suspicious trading" in Masonite and two other companies by two then-CIBC advisers in Montreal, Paul Azeff and Korin Bobrow, but had not established a connection between the men and Mr. Finkelstein, the document says.
The OSC did not request copies of e-mail records for Mr. Miller or his colleague, Man Kin (Francis) Cheng, also named in the OSC's allegations, until November, 2008, the submission says. Investigators did not interview Mr. Miller until August, 2009.
The OSC obtained Mr. Azeff's e-mails in September, 2009, and learned of his relationship with Mr. Finkelstein, the document says. But the OSC did not interview Mr. Finkelstein until August, 2010. It next interviewed him in October, 2010, in a five-hour session, just a month before the limitation period on the Masonite allegations was to run out, showing him copies of his banking and phone records, the document says.
The OSC sent him an enforcement notice on Nov. 3, 2010, and as it usually does in such cases, inviting him to respond before it made the allegations public. It gave him until Nov. 8, and then an extension until Nov. 10, after initially refusing to do so. The OSC added more allegations against Mr. Finkelstein in the interim, the submission says.
Mr. Finkelstein's lawyers argue the notice was too vague and that he could not prepare an adequate response to it in just a few days. The OSC made its allegations against him public on Nov. 11, 2010.
The OSC said it could not provide its written arguments until after the hearing begins. Its lawyers are expected to argue that Mr. Finkelstein's motion should be considered later at his main hearing.