Alberta Securities Commission dismisses application for interim cease trade order against shortseller for disparaging tweets

On August 15, 2018, a two-member panel of the Alberta Securities Commission (“ASC”) dismissed an interim cease trade application by ASC enforcement staff to temporarily ban shortseller Marc Cohodes from trading in Badger Daylighting Ltd. (“Badger”) as a result of disparaging social media posts which Cahodes made against Badger. The ASC panel dismissed the application on the basis that ASC Staff provided “insufficient grounds” to ban Cahodes from trading Badger securities or prohibit him from making any public statements about Badger. Written reasons are forthcoming.

Since May 2017, and around the time he acquired a short position in Badger, Mr. Cahodes made numerous public comments critical of Badger, a company providing oilfield waste removal services. ASC Staff were particularly concerned with a June 27, 2018 Twitter post, in which Mr. Cahodes allegedly misrepresented a picture of a Badger truck as support for his allegation that Badger was illegally dumping toxic waste. ASC Staff alleged that Mr. Cahodes Twitter posts were manipulative and would result in or contribute to an artificial price for Badger securities. During the hearing, Mr. Cahodes’ lawyers noted that there was no evidence of a causal relationship between Mr. Cahodes’ tweets and a drop in Badger’s share price. In fact, Badger’s share price increased by 20 percent since May 2017.

This case, and others like it, demonstrate that with the increasing use of social media by capital market participants, securities regulators will be increasingly focused on this medium of disclosure and where to draw lines between what constitutes free speech and what constitutes manipulative conduct. The reasons for decision in the Cahodes/Badger case may shed light on where the Alberta regulators believe the lines should be drawn. We will continue to monitor these developments and update in future blog posts.