Redress Risk Management (post until May 31/19)
Commercial Litigation, Securities

OSC decision shows severity of penalties for illegal insider trading

Financial and professional sanctions imposed by the Ontario Securities Commission in a recent illegal insider trading case demonstrate how seriously regulators take these violations, even when relatively small amounts of money are involved, says Toronto commercial litigation lawyer William Pepall.

As the Financial Post reports, a former investment banking analyst at BMO Nesbitt Burns, who was accused of trading ahead of deals for a profit of over $400,000, was ordered earlier this month by the OSC to pay an administrative penalty of $750,000 as well as costs. He is also permanently banned from jobs at firms registered with the commission.

“Once again the regulator has underscored that capital market integrity or confidence depends upon equal access to material information. Participants who profit or avoid loss by trading or tipping on information not generally disclosed will be dealt with harshly,” says Pepall, a partner with Lerners LLP.

Broadly, based upon reports of recent cases in both the U.S. and Canada, Pepall says that the successful prosecution of insider trading cases is becoming more common. The trend, he explains, suggests improved methods of detection and perhaps an enhanced ability on the part of regulators to prove the core elements of the offence.

Pepall explains that the sanctions in this case also reveal the element of deterrence and the public interest jurisdiction of the OSC. “Even in circumstances where the offence is admitted and regret is expressed, the fine may be a multiple of the profit and administrative penalties will be imposed as well,” he adds.

“Insiders who engage in prohibited trading or tipping are clearly on notice of the risk of detection and the severity of the penalty. There is an additional civil liability that is rarely discussed, but it exists as well,” he says.

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