A series of recent Alberta Securities Commission decisions recently underscored the inherent dangers of buying or selling securities of companies in which one is an insider. The risk is that while the insider may legitimately believe they have no undisclosed material information when they trade, a regulator can later take a different view of the same information.
In its April 10, 2013 decision Re Stan, the respondent insiders were acquitted of insider trading or tipping after a 14-day hearing, but incurred defence and expert witness costs reputed to be in seven figures. The allegedly undisclosed material information involved internal sales and production forecasts. ASC staff believed the internal information to be sufficiently material to preclude trading but the respondents (and the Panel) disagreed.
In Re Keith, a 2012 decision in which BLG acted for one of the respondents, insiders and family members were similarly acquitted of insider trading and tipping arising out of a corporate takeover. The allegedly improper trading took place in the period immediately prior to the announcement of the takeover. There, too, ASC staff believed that the insiders had certain material information not yet generally disclosed. The Panel found that the insiders did not have as much information about the takeover as Staff alleged and what they did have was not material.
An example of a different outcome was Re Kapusta in which insiders traded while in possession of certain information pertaining to an oil discovery. Staff contended the information was material and the respondents countered that the information was contingent, speculative and not material to the company as a whole in any event.
The Panel undertook a detailed review of the information, concluded some of it was at a certain point material and determined some of the trades to have contravened the Securities Act.
The lesson is “better safe than sorry”. Insiders always know something that the public doesn’t, so if there is the slightest doubt of whether information is material, the company should consider disclosing it, absent which insiders should think very hard about whether to trade even if they believe they have no undisclosed material information.