The Ontario Securities Commission has found that a man improperly tipped his wife to a pending acquisition by his company, and that they traded on that information, thereby violating the public interest.
The OSC handed down its decision Monday in the case of Shane Suman, who was accused of tipping his wife, Monie Rahman, to plans by his firm, MDS Sciex (a subsidiary of MDS Inc.), to acquire Molecular Devices Corp., which was listed on Nasdaq, but not a reporting issuer in Ontario; and that they then traded on that inside information.
It found that Suman, who worked in IT at MDS, did indeed inform Rahman of the proposed acquisition, in violation of securities law. It also found that while trading on that information didn’t contravene the law because the firm was not a reporting issuer, it would have violated the securities act if it was a reporting issuer, and so, the trading “was inconsistent with the underlying policy objectives [of the act]”. As a result, it concluded that trading on that information “was conduct that was contrary to the public interest”. A sanctions and costs hearing will follow at a later date.
The OSC first leveled allegations in the case in the summer of 2007, regarding trading that took place in January 2007 ahead of MDS’ acquisition of Molecular Devices, a deal that was publicly announced on January 29, 2007. It says they purchased 12,000 Molecular shares and 900 option contracts entitling them to purchase an aggregate of 90,000 shares between January 24 and January 26, 2007, and sold them all by March 16, 2007 for a profit of US$954,938.
According to the decision, the key issues in the case were whether Suman learned of the proposed acquisition, whether he informed Rahman of it, and whether they purchased the Molecular securities with knowledge of the proposed deal. The decision says that the couple argued that they didn’t know of the proposed acquisition when they purchased the securities, and that their trading was based on financial research they had conducted, and that the OSC’s case was entirely circumstantial.
The panel noted that OSC staff does not have to bring direct evidence to prove that Suman learned of the proposedacquisition, and that knowledge of an undisclosed material fact “may be properly inferred based on circumstantial evidence that includes proof of the ability and opportunity to acquire the information combined with evidence of well-timed, highly uncharacteristic, risky and highly profitable trades.”
“What staff must prove based on clear, convincing and cogent evidence is that it is more likely than not that Suman learned of the proposed acquisition through his IT role at MDS Sciex, that he informed Rahman of it, and that the respondents purchased the Molecular securities with knowledge of the proposed acquisition,” it says. “We can infer these conclusions from the evidence submitted to us provided the inferences arise reasonably and logically from the facts established by the evidence.”
Back in 2010, a New York court also entered summary judgment against Suman and Rahman in response to allegations by the U.S. Securities and Exchange Commission. That judgment, by the U.S. District Court for the Southern District of New York, ordered them to disgorge US$1,039,440 plus prejudgment interest, imposed civil penalties of US$2,000,000 against Suman of US$1,000,000 against Rahman, and permanently enjoined them from further violations securities laws.
Canadian couple ordered to disgorge US$1 million in profits from MDS offer