OSC Staff has earned a long sought victory in its quest to police insider and related trading activity. But its victory was only partial, and the case reinforces the evidentiary challenges faced in these cases. In the matter of Eda Marie Agueci et al., a 154 page decision released on February 11, 2015, a Panel of the OSC (“Panel”) found that Eda Marie Agueci, an executive assistant in the mining group of GMP Securities LP, tipped several of her associates and acquaintances about certain mining transactions that took place in 2007 and 2008 and that such activity was contrary to section 76(2) of the Securities Act (the “Act”) and contrary to the public interest. The Panel also held that in several instances, certain tippee respondents (i.e., respondents who had been tipped by Agueci) used the information they received to trade in securities contrary to section 76(1) of the Act and contrary to the public interest. However, not all of the allegations made by OSC Staff were successful, as a number of the allegations against other tippee respondents, including the allegations against a further down-stream tippee respondent, were dismissed.

OSC Staff, investors and other market participants are currently awaiting the decision in another high profile insider trading case in the matter of Paul Azeff, Korin Bobrow, Mitchell Finkelstein, Howard Jeffrey Miller and Man Kin Cheng (a.k.a. Francis Cheng) (“Finkelstein”). Like the Agueci decision, Finkelstein involves allegations of a chain of tipper-tippee misconduct, including the alleged misconduct of several down-stream tippees. In Finkelstein, a former Bay Street lawyer, Mitchell Finkelstein, is alleged to have used his position at his firm to acquire material, non-public information concerning pending corporate transactions and shared that information with his friend Paul Azeff, who in turn, tipped other respondents. One of those other respondents, it is alleged, then tipped another respondent, who is alleged to have informed yet another respondent.

We have noted previously on this blog the challenges faced by Canadian and American securities authorities attempting to successfully secure convictions in cases involving a chain of tipper-tippee misconduct (“Recent Insider Trading Cases in the US and Canada May Signal an Evidentiary Sea Change”). In the Alberta Court of Appeal’s decision in Walton v Alberta (Securities Commission) (dated August 29, 2014), and in the Second Circuit’s decision in United States v. Newman and Chiasson (dated December 10, 2014), securities enforcers have faced challenges with their attempts to win cases based on circumstantial evidence, especially in relation to tippee liability.

In Agueci, much of the evidence tendered by OSC Staff to prove its allegations was circumstantial in nature, including the relationships between respondents and the timing of trades made by respondents following communications they had with Agueci. In arriving at its conclusions, the Panel weighed the circumstantial evidence advanced by OSC Staff against the direct evidence of certain of the respondents who testified at the hearing. For certain of the respondents, the circumstantial evidence was sufficient to establish tippee liability. For other respondents, however, the Panel concluded that the circumstantial evidence was not sufficient to infer that material non-public information had been received from Agueci which lead to the subsequent trade by the respondent. Interestingly, the tippee allegations that were successfully proven by OSC Staff were those against the respondents who provided direct viva voce evidence in the course of the proceeding. This outcome appears to reflect the upheaval that the Newman decision has ushered in, causing both the SEC and state prosecutors in the US to reconsider their approaches in these cases.

Leave from the Supreme Court of Canada has been sought in Walton, while prosecutors in the US are seeking a rehearing en banc of the Second Circuit’s decision in Newman. The ultimate outcome of these cases (and any potential appeal of the Agueci decision) will provide an opportunity for courts on both sides of the border to provide much needed clarity to an increasingly confusing area of law. Such clarity is needed not just for white collar enforcers and adjudicators, but to assist market participants and their advisors in ensuring adequate compliance with their obligations under the law.