Staff at the Ontario Securities Commission (OSC) may have thought they had a compelling case that Paul Donald, a vice-president at Research in Motion (RIM) had violated s 76(1) of the Securities Act, which makes it an offence for a person to trade in the securities of an issuer with which the person is in a ‘special relationship’ on the basis of a material fact or material change about the issuer that has not been generally disclosed. Donald had been out golfing with another RIM exec, who told him that RIM was interested in acquiring Certicom, with which it had been in discussions, and that he thought Certicom’s shares were undervalued. Donald bought a bunch of Certicom shares the next day, later claiming that he had conducted his own research which confirmed that the company was undervalued.

The OSC hearing panel concluded that Donald had traded on three material undisclosed facts: RIM’s interest in acquiring Certicom, the fact that there had been talks between the companies and the undervalue of Certicom’s shares based on information not available to the public. The panel did not agree, however, with the argument that Donald (or the other RIM exec) was in a special relationship with Certicom. This would have arisen if RIM had been ‘proposing’ to make a bid for Certicom or to enter into some other combination with it, but the requisite level of involvement and approval of RIM’s senior management was lacking. People at RIM may have been interested in acquiring Certicom, but this fell short of ‘proposing’ for the purposes of the definition of ‘special relationship’ in s 76(5). The panel did find that Donald had acted contrary to the public interest even without having engaged in insider trading. He should not have traded in Certicom shares on the basis of facts which were not generally known, which was an abuse of the capital markets.

[Link available here].