Lawyer tipped advisor on M&A deals: OSC

The panel ruled that allegations were proven in connection with three of the transactions, and that OSC staff did not prove their case in the three other instances. A hearing on sanctions has been scheduled for May 21.

OSC staff alleged that on six separate occasions Finkelstein tipped his friend, Azeff, who was an investment advisor with CIBC in Montreal, and that the information filtered down to three other advisors, who engaged in insider trading or tipping by trading on that information, or recommending the stocks to clients while in possession of the material non-public information.

The decision notes that the respondents in the case acknowledge their relationships, that they communicated, and the trading, but emphatically deny that they received, or traded on, any inside information. “They assert that they had good reason, based on due diligence, to purchase the target shares and no motivation to engage in illegal activity that they understood, as professionals and registrants, would prejudice their successful careers,” it notes.

The panel concluded that Finkelstein had knowledge of undisclosed material facts regarding the six takeover transactions alleged. In three cases, he had direct knowledge, the panel found, because he was a lawyer involved in the transaction and knew of the decision to acquire a target, when it was made. In the three other transactions, it also found that Finkelstein had knowledge of the decision to acquire the target, although he was not working on the transactions, because he accessed deal documents between the time of the decision to acquire and the public announcement. However, it only concluded that this information was passed on to the brokers in three of the six cases.

According to the decision, the panel found that Finkelstein tipped Azeff to undisclosed material facts while in a special relationship with Masonite International Corp., and that Azeff, Bobrow, Miller and Cheng each purchased Masonite securities with knowledge of these facts, contrary to the public interest; and, that they acted contrary to the public interest by recommending the stock to clients.

The panel says, “On a balance of probabilities, we find that the purchase of MHM shares by Azeff and Bobrow, Miller and Cheng, was timely trading motivated by the [inside information] each of them received.” It says that it considered the brokers’ explanation for their trading, but determined that “it is more probable that the purchases resulted from the knowledge of undisclosed material facts they received rather than by their own research efforts.”

It also found that Finkelstein tipped Azeff to inside information involving Dynatec Corp, and that Azeff and Bobrow acted contrary to the public interest by recommending the stock to clients with knowledge of that inside information. However, the panel ruled that allegations of illegal trading, tipping and recommending against Miller and Cheng were not proven in this case.

Finally, it found that Finkelstein tipped Azeff in connection with Legacy Hotels REIT, and that Azeff and Bobrow again acted contrary to the public interest by recommending the stock to clients with knowledge of the inside information.

In connection with three other stocks — IPC US REIT, MDSI Mobile Data Solutions Inc., and Placer Dome Inc.— the panel found that the OSC’s allegations were not proven.

For instance, in the MDSI case, the panel said that while “there are suspicious circumstances… we do not find that we have clear, convincing and cogent evidence of facts from which to draw the necessary inferences that Finkelstein tipped Azeff, who used [inside information] to recommend MDSI shares contrary to the public interest. We dismiss the allegation that Finkelstein tipped Azeff.”