The illegal insider trading allegations against two prominent mining industry figures are "specious" and "patently ridiculous," lawyers for the men charged on Wednesday.
A hearing before an Ontario Securities Commission panel began this week for Jowdat Waheed, a former chief executive officer of Sherritt International Corp., and Bruce Walter, a veteran deal maker who played a role in the formation of Barrick Gold Corp. in the 1980s. The two men teamed up on a takeover for Baffinland Iron Mines Corp. in 2010.
The OSC alleges that Mr. Waheed engaged in "tipping" by using confidential information he learned while consulting for Baffinland to team up with Mr. Walter, buy shares in the junior mining company and mount a hostile bid.
The hearing comes as the OSC has cracked down on illegal insider trading, launching a series of high-profile cases.
On Wednesday, Mr. Walter's lawyer, Kent Thomson, accused the OSC of making serious allegations against his client "without a shred of evidence" and despite the fact that the OSC itself, in a 2010 hearing on an attempt to block the takeover bid, approved the deal.
"It is critically important that the panel understand just how far out in left field this case is," Mr. Thomson said.
"We are not just in left field, in my respectful submission, in this case we are in the bleachers."
The men argue they are innocent of insider trading because any information Mr. Jowdat had about Baffinland's talks with steel giant ArcelorMittal and the junior mining firm's plans was widely known and speculated upon publicly. They say the allegations were raised by Baffinland as a "tactical" move in the takeover battle, and should not now be pursued by the OSC. The hearing is scheduled to continue for at least five weeks.
In 2010, the company was sitting on a massive Baffin Island iron ore deposit and engaged in on-again off-again talks with Luxembourg-based ArcelorMittal on a potential joint venture for the site. The plans called for a $4-billion project involving the construction of a railway to carry the ore to an inlet for shipment to steel mills in Europe, a venture too big for Baffinland alone.
Mr. Waheed worked as a consultant for Baffinland from February to April, 2010. The OSC alleges he had insider knowledge of talks with Arcelor and information about negotiations with the local Inuit group over royalties when he launched his bid with Mr. Walter for Baffinland. OSC lawyer Jennifer Lynch also said Mr. Waheed kept a copy of a "financial model" for the mine, obtained while at Baffinland, on his home computer.
After his role as a consultant ended, Mr. Waheed formed Nunavut Iron Ore Co. with Mr. Walter in August, 2010, and acquired a "toehold" stake in Baffinland on Sept. 9 of that year. They launched their takeover bid on Sept. 22, just days before Baffinland and Arcelor were expected to finalize their joint venture, the OSC alleges. Arcelor countered Nunanvut's bid, and both would end up acquiring Baffinland in a joint bid in January 2011.
Paul Steep, a lawyer acting for Mr. Waheed, told the panel that Baffinland's talks with Arcelor were well known in the business world. He cited a Mining Weekly article that quoted Baffinland CEO Richard McCloskey, on Aug. 31, 2010 – just before Mr. Waheed and Mr. Walter launched their bid – saying that the company was in talks with potential "strategic partners" including "mining companies" and "European steel makers."
Mr. Steep also said Mr. Waheed developed the "financial model," as well as a rough, cheaper alternative plan to initially truck the ore instead using rail, himself, based on his own assumptions and without any confidential company data.
Plus, Mr. Steep said, it was clear that Mr. McCloskey had little time for Mr. Waheed or his idea for trucking the ore instead of using rail. In e-mails read out by Mr. Steep, Mr. McCloskey dismisses his consultant's plans as "diarrhea" and "insanity" that would be "embarrassing" and "dangerous" to the company.