Jowdat Waheed, the former chief executive officer of mining giant Sherritt International Corp., took to the witness box on Wednesday to testify in his defence against allegations that he engaged in illegal insider trading in his 2010 hostile takeover bid for junior mining company Baffinland Iron Mines Corp.
The Ontario Securities Commission alleges that Mr. Waheed wrongly used information he gleaned while working as a consultant for Baffinland from February to April, 2010, when he teamed up with Bruce Walter, another prominent mining industry dealmaker, to buy shares and launch a hostile takeover bid for Baffinland that year.
The OSC finished laying out its case this week against the pair after five weeks of hearings that began in mid-January. The OSC alleges that Mr. Waheed and Mr. Walter knew too much about talks between Baffinland, sitting on a massive, undeveloped iron-ore deposit on Baffin Island, and Luxembourg-based steel giant ArcelorMittal on a possible joint venture.
But Mr. Waheed testified before the OSC panel on Wednesday that he was not at a Baffinland board meeting in March, 2010, when the ArcelorMittal talks were discussed, and that he had nothing to do with Baffinland's negotiations with the steel giant that month in London, while he was on a family vacation in Dubai.
He said a Baffinland official may have "given me some observations, but there was no debriefing."
Both Mr. Waheed and Mr. Walter deny that any of the information Mr. Waheed had was confidential, arguing that it was widely known that Baffinland was in talks with ArcelorMittal and that Mr. Waheed had no insider knowledge of the state of those talks when they launched their bid.
It's the latest OSC hearing in a wave of high-profile enforcement actions launched by commission investigators at alleged illegal insider trading on Bay Street. But this case bears few of the telltale signs of a typical insider-trading case, such as a tipper who uses codewords or is paid for feeding inside information to others with suspicious envelopes of cash.
Mr. Waheed and Mr. Walter did not hide what they were doing, disclosing the takeover bid launched by their company, Nunavut Iron Ore Co., and the "toehold" position they took on Sept. 9, 2010, when they bought shares in Baffinland as a first move.
Nunavut Iron Ore then launched its hostile takeover bid on Sept. 22, just days before ArcelorMittal and Baffinland were to finalize a joint venture, prompting ArcelorMittal to launch its own takeover bid. ArcelorMittal and Nunavut Iron Ore would eventually join forces and take over Baffinland together.
Questioned by his lawyer, Paul Steep, on Wednesday, Mr. Waheed outlined his time as a consultant for Baffinland, and his advice to the company as it sought a big joint-venture partner to develop its Baffin Island deposit.
It was an expensive project that would require a deep-pocketed partner and $4-billion to $6-billion in capital to build a railway to get the ore to the ocean shore and a fleet of 1,000-foot-long, 190,000-tonne ships to transport the ore to steel mills in Europe. The hearing has been told that speculation in the market and reports in the media widely labelled ArcelorMittal as a likely partner.
Mr. Waheed told the hearing on Wednesday that when he took on the consulting job, the talks with ArcelorMittal were unpromising and the company was in a funk: "I had only one pass by the office, and every door was shut. There was no interaction. It was a very crabby environment."
The company's leadership has been previously described at the hearing as dysfunctional. Gordon McCreary, the chief executive officer, had "some anger issues, walked out of meetings," Mr. Waheed told the hearing.
Mr. Waheed's advice to Baffinland, outlined in a blunt February, 2010, e-mail to Mr. McCreary and other company brass, was for Baffinland to consider a lower-cost first phase for their project that would see Baffinland truck smaller amounts of ore to the shore itself, in order to make some money in the meantime and strengthen its negotiating position with ArcelorMittal.
Mr. Waheed would later develop a feasibility study – a key part of the OSC's allegations – on the trucking option. But he says the study used his own assumed numbers for its estimated costs, based on his own knowledge and Web research and not inside information from Baffinland.
Talks with ArcelorMittal would stall by the time Mr. Waheed's time as a consultant ended, leaving Baffinland to seek other partners. Mr. Waheed organized meetings with officials from Barclays Bank PLC and with Ian Delaney of Sherritt to explore other options, but nothing would come of these meetings.
A major component of the OSC staff's case against Mr. Waheed and Mr. Walter rests on what Baffinland's vice-chairwoman, Daniella Dimitrov, told Mr. Waheed at a meeting in July, 2010, and whether she told him that negotiations with ArcelorMittal had been revived.
Under cross-examination this month, she said the name ArcelorMittal never came up in the meeting, but that she told Mr. Waheed that time was running short if he wanted to present the company with an alternative proposal – a message she also gave to other companies that were potential partners.