Canada’s first criminal conviction for illegal insider trading has resulted in a 39 month prison sentence for the accused, Stan Grmovsek, who pleaded guilty on November 6, 2009. Grmovsek and his co-accused, Gil Cornblum, classmates at law school, started an illegal insider trading scheme in which Cornblum sought and obtained material, non-public information about pending corporate transactions that he passed to Grmovsek who then executed trades in the securities of the corporations involved in the corporate transactions for a profit that they shared. In total, Cornblum tipped and Grmovsek traded in 46 transactions involving securities that were publicly listed in Canada and the United States.
In Canada, Grmovsek was charged with three offences: (i) fraud (for trades executed before the new Criminal Code insider trading provisions), (ii) illegal insider trading contrary to the Criminal Code and, (iii) money laundering contrary to the Criminal Code.
Section 382.1 of the Criminal Code, introduced in 2004, prohibits insider trading and tipping, punishable by a maximum prison term of 10 years, and requires the Crown to prove that the accused “knowingly used inside information.” In contrast, an individual may also be prosecuted under the Securities Act for insider trading, however, the Securities Act limits imprisonment to five years less a day and the Crown is only required to prove that the individual was in possession of knowledge that was not generally disclosed to the public.
On January 7, 2010, the Court sentenced Grmovsek to 39 months imprisonment on the joint recommendation of the prosecution and the defence. In addition, Grmovsek pleaded guilty and was convicted of one count of conspiracy to defraud the United States in the United States District Court, as a result of an investigation by the Securities and Exchange Commission (“SEC”), where he was sentenced to a term of imprisonment of time served and fined one hundred dollars. Finally, in addition to the jail terms, Grmovsek is required to disgorge a total of $8.5 million dollars to the SEC and a further $1.03 million to the Ontario Securities Commission, including $283,000.00 to the Attorney General for Ontario, plus costs of $250,000.00.