North American se-curities regulators are taking action to combat the rise of insider trading.

In the U.S., the Securities and Exchange Commission announced a rash of new cases in early May involving alleged illegal insider trading ahead of pending merger announcements. At the same time, the Ontario Securities Commission revealed that it is reviving a case of its own involving similar allegations.

The OSC has announced that it will retry former investment banker Andrew Rankin on the tipping charges it initially brought against him in 2004. Rankin was originally charged with 10 counts of tipping and 10 counts of insider trading concerning allegations that he alerted childhood friend Daniel Duic to various pending mergers and acquisitions.

Rankin denied the charges and the case went to trial. He was found not guilty on the insider trading counts, but was convicted of the tipping charges. Both sides appealed and the court tossed out the tipping convictions, too, saying that the trial judge had failed to take into account inconsistencies in Duic’s testimony. The judge set aside the convictions and ordered a new trial.

The OSC sought leave to appeal that decision, which was denied. Ultimately, on May 3 of this year, the OSC announced that it would try the case once again — this time, only on the tipping counts. The first appearance in the matter was May 22, after Investment Executive went to press.

Since the OSC announced the revival of its high-profile prosecution, the SEC has announced a slew of its own insider trading cases. On May 4, the SEC charged an investment banker with tipping a friend in Pakistan to several upcoming mergers, including the leveraged buyout of TXU Corp. by a private-equity investor group. Then, on May 9, the SEC alleged that a Hong Kong-based couple traded on inside information about News Corp.’s bid for Dow Jones & Co. Inc. The following day, the SEC charged an employee of Morgan Stanley & Co. Inc. and her husband, claiming that they traded on advance knowledge of acquisitions planned by the firm’s real estate division.

None of those allegations have been proven, but on May 14 the SEC announced that it had settled a case of alleged insider trading — even though the accused neither admitted nor denied the allegations — with a former vice president of Oracle Corp., in a case involving claims that he traded on news of secret merger negotiations related by his wife, who also worked at the company.

All of these cases share allegations that insiders are taking advantage of advance knowledge of upcoming mergers. And a number of theories have been floated as to why these types of cases suddenly seem so common. Although the likely motive for such trading — greed — hasn’t changed, both methods and opportunities have multiplied in recent years.

The opportunity to trade on inside information has seemingly increased. The recent boom in M&A activity has certainly created more occasions for people to trade ahead of deals. Also, some market observers point out that the types of deals being done — large, complex deals; some involving syndicates of private-equity investors — heightens the risk of information leaks simply because more people have access to the insider information.

Similarly, the methods available to trade discreetly have increased along with technology — the In-ternet enables people to access the markets from any number of remote locations and to communicate inside information quickly and anonymously. Additionally, most people in the markets today probably don’t remember the big insider trading cases of the late 1980s and, therefore, much of the deterrent effect of those high-profile cases may have worn off.

TOP PRIORITY

Whether the incidence of illegal insider trading has actually grown or not, regulators indicate that their efforts to detect it, and prosecute it, are increasing. “The SEC has made insider trading ahead of mergers and acquisitions one of its top priorities,” says Linda Thomsen, director of the SEC’s enforcement division. She adds that, although insider trading cases are often complex, the SEC is committed to pursuing them “no matter where in the world the evidence may lead.”

The OSC is also eager to stamp out improper insider trading, and that’s one of the primary reasons it is trying to make the tipping charges stick in the Rankin case.

@page_break@“The OSC considers the alleged misuse of confidential information to be a very serious matter,” says Laurie Gillett, the OSC’s manager of public affairs. “We are proceeding with a new trial, as we have concluded that it is in the public interest to do so.”

Gillett stresses that the same rationale — that the OSC takes the alleged misuse of confidential information very seriously — will determine whether the OSC will join the SEC in bringing more tipping or insider trading cases. “The commission will take action appropriate to the circumstances of each case,” she says.

How easy it is to bring future cases may be affected by how Rankin’s second trial goes. As such, it would be difficult for the commission to leave the tipping conviction set aside because it would remain an obstacle to getting convictions in future cases, suggests independent industry observer and former OSC commissioner Glorianne Stromberg.

Yet, if the commission loses a second trial, it will be left with an even higher hurdle for winning a tipping case. However, Stromberg points out, facts of each case vary; it’s hard to predict how much of an obstacle another acquittal would pose for future prosecutions.

There are seemingly plenty of signs of insider trading in the markets, but, for regulators, proving its existence is no easy task. IE