The Ontario Securities Commission has publicly stated it is going to be more aggressive on insider issues. Electronic stock ticker outside Scotia Plaza showing gains made by the TSX after the Euro debt crisis was staunched by a $ 1 trillion stimulus package. File photos of downtown Toronto's financial district and area taken at night on Oct 27 2011. (Fred Lum/The Globe and Mail)Fred Lum/The Globe and Mail
This is the burning question: if someone is caught engaging in insider trading, or tipping someone off on insider information, do they need jail time to learn their lesson?
It is a particularly relevant issue right now because the Ontario Securities Commission has publicly stated it is going to be more aggressive on insider issues. But in some cases, it lacks the firepower to back up its claims. So instead of seeking criminal charges, the OSC has alleged some people have acted "contrary to the public interest."
The key difference: criminal cases, heard in provincial courts, can result in jail time. Administrative cases – those where someone is alleged to have acted contrary to the public interest – are heard in securities commission courts, and guilty verdicts can lead to heavy fines but no jail.
Two recent cases were fought under the administrative category. In August, the OSC ruled that Paul Donald, a former Research in Motion employee, acted contrary to the public interest when he bought shares of Certicom after hearing his own firm was considering buying it. Although no serious criminal charges were laid, because it was determined that the takeover consideration wasn't very serious when Mr. Donald made the trade, the OSC still sent a message. Sanctions have yet to be determined.
In a more recent statement of allegations, mining executive Ian Telfer is alleged to have acted contrary to the public interest by helping a friend secretly buy shares in a firm he was helping to launch. That case has yet to be heard.
But in situations like these, are fines enough if the defendant is found guilty? The issue came up during a panel discussion at the office of Goodmans LLP. The clear message: simply dragging someone's name into the press and slapping them with fines can be extremely damaging.
"You really can't underestimate the effect of that," said lawyer John Keefe, who specializes in white collar crime. Simply releasing a statement of allegations and holding a public hearing is "devastating for the people involved."
This line of thinking was backed by both his colleague, Jonathan Lampe, who was once general counsel to the OSC, as well as Lawrence Ritchie, vice-chair of the OSC.
"The mere allegation destroys reputations and leaves a tarnish," said Mr. Lampe.
However, this doesn't mean the OSC, or other provincial commissions, are going to settle for lesser damages when they don't need to. Mr. Ritchie noted that the OSC's technology to analyze insider trading is now just as sophisticated as the Securities and Exchange Commission's. (He didn't detail how it worked, but explained that it's much more sophisticated than the old programs that used to track trades through the postal codes of insiders.)
But Mr. Ritchie did say the regulators could certainly use more firepower to investigate their suspicions of insider trading. He is a big fan of a national regulator, and is on secondment with the Canadian Securities Transition Office to try to establish one, but until that matter is settled, he thinks the commissions should collaborate more often.
"At the very least, there should be a greater pooling of resources," he said.
Tim Kiladze