CIBC wrong to fire two employees involved in insider trading case, says tribunal

Share

CIBC World Markets Inc. should not have fired two employees involved in a high-profile insider trading case, according to a recent ruling by Quebec's Labour Relations Commission.

The case involved former CIBC investment adviser Paul Azeff and associate investment adviser Korin Bobrow, who were dismissed in 2010 after the Ontario Securities Commission named them in a major insider trading case that also involved former Bay Street lawyer Mitchell Finkelstein.

The OSC alleged Mr. Finkelstein learned about undisclosed takeover deals that his firm was working on, and passed along tips about the transactions to Mr. Azeff, who was a former fraternity brother of Mr. Finkelstein's from university. The OSC alleged Mr. Azeff and Mr. Bobrow bought shares based on the information and passed along the tips to clients. The OSC case has not yet concluded and the allegations have not been proven.

Mr. Azeff and Mr. Bobrow launched a wrongful dismissal case against CIBC in 2011, alleging they had not breached internal policies that were cited as reasons for their firings. The men were suspended the day after the OSC filed a statement of allegations in November, 2010, and both were fired the following month.

In a ruling published last month, the Commission des relations du travail said CIBC did not prove the men breached internal policies to justify their dismissal.

"In this case, the employer has chosen to justify its decision to dismiss the plaintiffs solely on the failure of its policies and their lack of credibility," the decision states. "It failed in both cases."

The tribunal said it would have upheld the dismissals "without hesitation" if CIBC had proved the men were involved in the illegal acts.

CIBC, however, told the commission it did not dismiss the men because of the insider trading allegations because it did not have "the smoking gun" to prove the OSC's case.

CIBC instead focused more narrowly on alleged breaches of internal rules requiring investment advisers to document reasons for recommending trades to clients, and on rules that prohibit advisers from trading for their personal accounts ahead of doing trades for clients.

The firm also alleged the men were "untruthful" when interviewed internally about their trading, and said their comments were "frequently contradictory" and "sometimes illogical."

The Labour Relations Commission did not accept CIBC's evidence that its policies were breached, however, concluding that the former brokers had analyst reports and other research to justify their decisions to purchase shares of companies.

"The employer has not proved a contravention of the policy that would justify immediate dismissal," the commission ruled. "At most, the situation deserved a check and a reminder of the rule."

The tribunal also rejected allegations that the men were untruthful in their interviews with CIBC lawyers, concluding instead that they appeared forthcoming.

For example, the commission rejected CIBC's claims that Mr. Azeff tried to downplay his relationship with Mr. Finkelstein and was "inconsistent" in characterizing their relationship.

In a excerpt of an internal CIBC interview, Mr. Azeff said he knew Mr. Finkelstein from university, and they spoke "a few times a year," which the tribunal said seemed consistent with other information and did not seem evasive.

The tribunal also noted that the men did the interviews with CIBC lawyers after being ejected from their offices and with no access to any of their records or computers. They were also required to find their own lawyers for the interviews on short notice after previously being represented by CIBC lawyers, and their new lawyer "tried unsuccessfully" to get copies of documents in advance that would be used at the interviews.

"What emerges from the totality of the evidence is that the plaintiffs were not treated fairly in the investigation process," the commission concluded.

The panel has not decided yet on remedies in the case. Both sides agreed at the beginning of the hearing last year that the panel could first rule on the merits of the complaint, and then decide later on appropriate action if needed.

Lawyer Normand Perreault, who represented both men at the hearing, said Monday he could not comment on the case because it is not yet completed. CIBC has filed an application for the decision to be reviewed by the Quebec Superior Court.