On April 7, 2014, the Bureau de décision et de révision (BDR) ruled on an application by the Autorité des marchés financiers (AMF) seeking an administrative penalty against a director of a reporting issuer for having allegedly contravened tipping restrictions under the Securities Act (Quebec) (QSA). The AMF claimed that a general comment made by the director about the general status of the business of the reporting issuer to the effect that “things were going badly” should be considered as “privileged information” and could lead to a violation of tipping restrictions. (Tipping prohibitions under the securities acts of other Canadian jurisdictions refer to “material fact” and “material change” rather than “privileged information” but have the same purpose, namely ensuring that the investing public has equal access to information relating to reporting issuers.)
The comment in this case would have been made during an informal conversation between the director and a former CFO of the company, at a time when the company was faced with the prospect of having the relationship with its one and only client terminated prematurely. Shortly after this alleged conversation took place, the former CFO sold a significant amount of shares she held in the company.
The BDR ultimately dismissed the AMF’s allegations against the director and concluded that the statement “things are going badly” is not precise enough to be considered privileged information. The BDR also cautioned that innocuous remarks should not be turned into privileged information simply because they are uttered in a particular context. To be considered privileged information, the information must be precise and not be random in nature. A simple eventuality or possibility can hardly constitute an important fact susceptible to affect the decision of a reasonable investor.
The BDR also emphasized that information relating to the deteriorating situation of this reporting issuer had already been publicly disclosed in the issuer’s disclosure documents.
Still, this decision serves as an important reminder of the tipping prohibition, and a fair warning that the AMF closely monitors insider trading and tipping and appears inclined to intervene whenever there is the slightest appearance of potential misconduct. In this context, reporting issuers are also reminded of the importance of keeping their insider trading and tipping policies up to date and of ensuring that their insiders are educated with respect to these restrictions and reminded of them from time to time.