Anisman calls on OSC to reconsider insider trading ruling

The case in question was an insider trading case that the OSC brought against a Research in Motion Ltd. (RIM) executive, Paul Donald, accusing him of insider trading when he traded shares of Certicom Corp. after learning that RIM was considering a takeover bid for the firm.

The commission found that the trading in question did not violate the Securities Act because RIM was only considering a bid, it hadn’t actually decided to launch a takeover offer. However, it found that his trading still violated the public interest because he traded with knowledge of an undisclosed material fact.

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In a letter to the commission Thursday, Anisman argues that this interpretation effectively limits the scope of the insider trading prohibition, and undermines the purpose of insider trading legislation. And, he requests that the commission adopt a policy to correct the decision.

The letter suggests that, in its decision, the OSC panel effectively narrowed the ban on insider trading when it found that Donald was not “in a special relationship” with Certicom when he bought stock in the firm, because RIM was not ‘proposing’ to make a takeover bid for the company when he learned of its interest in a possible bid. However, he suggests that this construes the meaning of the word “proposing” too narrowly.

“As the commission found that Donald traded with knowledge of material facts, it held that his trading was contrary to the public interest, even though it did not contravene the Act. The commission’s public interest conclusion makes clear that its reading of ‘proposing’ is not only inconsistent with accepted meanings of the word, but also with the Act’s purpose and the public interest itself,” he says in his letter. “A broader interpretation of ‘proposing’ that encompasses earlier stages of a proposed acquisition, and would have included RIM’s insiders as persons in a special relationship with Certicom, is necessary to reflect the goals of the insider trading prohibition.”

Anisman argues that the commission’s interpretation in this case undermines the deterrent effect of the prohibition against insider trading and the prohibition itself. “For this reason, and because insider trading ahead of an acquisition dramatically diminishes confidence in the fair operation of our securities markets, the commission should correct the interpretive approach and interpretation adopted in Donald,” he says.

The most effective way to do this is by adopting a policy, he suggests. “The commission should adopt a policy declaring that ‘proposing to make a takeover bid’ or other acquisition includes steps taken to determine whether, and the terms on which, a takeover bid or acquisition might be recommended to senior management and a board of directors and other conduct relating to a possible takeover bid or acquisition. Such a policy would, without affecting the result in the Donald decision, re-establish and reinforce the effectiveness of the Act’s insider trading provisions,” he says.