OSC alleges legal assistant involved in insider trading

The Ontario Securities Commission has issued a statement of allegations against a former legal assistant at a major Bay Street law firm and three other individuals, in which OSC Staff allege that the legal assistant provided an institutional trader with material non-public information, which was then used to carry out significant trades. This latest insider trading case points to what appears to be a far-reaching ring of wrongdoing, implicating investment firms and brokerages in Bermuda, the British Virgin Islands and Panama.

The Statement of Allegations alleges that legal assistant Donna Hutchinson tipped stock trader Cameron Cornish by providing him with confidential information about a series of takeover offers between October 2011 and April 2016, all in contravention of the insider trading and tipping provisions in the Ontario Securities Act. OSC Staff alleged that Cornish then passed on this information to two other individuals, one of whom did his trading through a Panamanian brokerage house. According to the allegations, as a result of her position as a legal assistant working on M&A transactions in the law firm, Hutchison was well-placed to secrete and remove from her employer’s offices certain highly confidential, material non-public information.

OSC Staff recently scored a major victory pursuing a high-profile insider trading and tipping case in the Finkelstein matter, which came following several well-publicized failures on the part of Staff to obtain favourable rulings in insider trading and tipping cases. Before Finkelstein, the difficulties centred on the nature of the evidence required to prove insider trading and tipping: since the nature of the activities is always clandestine, and since Staff do not have access to enhanced investigatory tools such as wiretaps, it has been practically impossible to catch a wrongdoer in the act. But the Panel in Finkelstein emphasized that it could draw inferences based on circumstantial evidence, and that this kind of evidence could be sufficient to ground a finding that illegal insider trading and tipping occurred. The decision was upheld by the Ontario Divisional Court (for our past publications on this case, see here, here, here and here).

This case is notable not only because it demonstrates that Staff are continuing to try to capitalize on the Finkelstein decision by pursuing the Commission’s public interest powers to combat insider trading and tipping, but also because of the scope of the allegations. In particular, the insider trading ring in this case appears to have been much larger than the four individuals named as respondents. The Statement of Allegations references but does not name executives at a foreign brokerage and certain Canadian investors that the regulator clearly believes engaged in illegal insider trading themselves. According to Staff, this unnamed group, including “certain officers and employees of the Panamanian Brokerage”, allegedly made millions trading based on the material non-public information that Hutchinson supplied, and that was subsequent passed down the chain into Panama. In that sense, there is a clear pragmatism to Staff’s framing of the case, since Staff have narrowed their focus to the four named individuals (three of whom are Canadian citizens), and are apparently willing to let the mystery group of foreign nationals – who benefitted the most from the alleged illicit scheme – off the hook.

This case also raises issues of general concern for all organizations that hold or have access to material non-public information. While it may be impossible to prevent individual employees from engaging in the kind of illegal behaviour that Staff have alleged occurred here, organizations should consider potential vulnerabilities and reassess whether any additional measures can be adopted to protect sensitive information.