On September 19, 2014, the Bureau de décision et de révision (BDR) granted a request by the Autorité des marchés financiers (AMF) for an administrative penalty of $9,000 against Jacques Gauthier (Gauthier), who was President and Chairman of the board of directors of AAER Inc. (AAER) at the time of the events at issue.
The AMF accused Gauthier of having contravened Section 187 of the Québec Securities Act by carrying out transactions when he knew that AAER had not been retained as a bidder on the most important call for tenders relating to wind energy by Hydro-Québec Distribution (Hydro-Québec). In particular, s. 187 of the Québec Securities Act provides that the insider cannot trade when he is in possession of privileged information that is unknown to the public and likely to influence the decision of a reasonable investor. However, s. 187 also provides that the insider may trade if he is justified in believing that the information is generally known to the public.
In this case, Gauthier did not contest the fact that, at the time of the transactions at issue, he was in possession of privileged information (i.e., that AAER had not been retained by Hydro-Québec as a bidder in the most important call for tenders relating to wind energy), which would obviously have a negative impact on the value of the shares of AAER. However, Gauthier made sure to wait until the bidders to be retained were publicly announced at a press conference and, of course, AAER was not among the bidders that were retained.
A few minutes later, at the time when Hydro-Québec published its press release announcing the identity of the retained bidders, Gauthier instructed his broker to sell the shares he owned in AAER. The AMF took the position that the information in question was not generally known.
Since Gauthier admitted the facts alleged against him, the BDR agreed with the joint submission of the parties to impose an administrative penalty in the amount of $9,000, under the circumstances.
An interesting fact of this case is that Gauthier had not avoided a loss, since the transactions were subsequently cancelled by IIROC.
This decision reiterates the well-known principle that one must allow sufficient time for the market to assimilate information, and that a transaction carried out by an insider in possession of material information within seconds or minutes following the disclosure of said information will certainly be closely scrutinized by the Canadian securities regulators.