The Ontario Securities Commission (OSC) has dismissed insider trading and tipping allegations against a pair of mining industry executives in connection with a takeover battle for Baffinland Iron Mines Corp. that played out in 2010.
OSC staff alleged that Jowdat Waheed, who worked as a consultant to Baffinland for a short time in early 2010, acquired inside information about the company in that role and used that information to launch a takeover bid through a company, Nunavut Iron Ore Acquisition Inc., that was set up for that purpose in the summer of 2010. The commission alleged that Waheed, as president and CEO of Nunavut Acquisition, and Bruce Walter, chairman of the company, violated insider trading rules, and engaged in conduct contrary to the public interest, when Nunavut took a stake in Baffinland in order to launch a takeover bid.
Specifically, OSC staff alleged that Waheed learned about negotiations for a possible joint venture between Baffinland and Indian steel and mining giant, ArcelorMittal, when he worked as a consultant to the firm; that he discovered other undisclosed material facts about the company after his consulting arrangement ended; and that he, along with Walter, used this information to launch a hostile bid for the company. The ensuing takeover battle ultimately ended in a joint deal between Nunavut and ArcelorMittal to acquire Baffinland.
According to the decision, Waheed maintained that none of the information he knew about possible negotiations with ArcelorMittal from his time as a consultant to Baffinland were material; and that he didn’t acquire any inside information about the company after the consulting period ended. Therefore, he couldn’t have conveyed any inside information, nor could they have traded on it improperly.
The hearing panel sided with Waheed and Walter, ruling that staff did not prove that Waheed had acquired any undisclosed material information; nor, did their conduct violate the public interest. “We agree with the respondents’ submissions that [the Securities Act] does not prohibit trading on the basis of non-material confidential information or rumours, speculation and suppositions. Having found that the respondents did not have knowledge of material facts relating to the negotiations between Baffinland and ArcelorMittal and therefore did not [violate insider trading or tipping laws], we do not find it appropriate in the circumstances to find that their conduct in this respect was contrary to the public interest,” the panel said in its decision.
While previous commission decisions have found upheld allegations of conduct contrary to the public interest, even without proving specific breaches of securities laws, the panel ruled that the circumstances of this case “are distinguishable” from the facts of earlier commission decisions in this area. It also notes that the respondents were not market participants at the time, and so its jurisdiction to ensure high standards of conduct by market participants does not apply.
Ultimately, the hearing panel dismissed all the allegations against them. “Mr. Walter and Mr. Waheed have been fully vindicated”, said Kent Thomson, of Davies Ward Phillips & Vineberg LLP, who represented Walter at the hearing. “As we made clear repeatedly during the course of the lengthy hearing of this matter, which lasted more than 40 days, the allegations made by staff of the OSC were completely without merit. This carefully reasoned decision should go a long way toward restoring the previously unblemished reputations of Mr. Walter and Mr. Waheed for honesty and integrity.”
The OSC’s director of enforcement, Tom Atkinson, defended the decision to bring the case, saying, “We have a duty to investigate suspected illegal insider trading schemes, no matter how complicated or challenging, and we will continue to pursue cases when the evidence is compelling and when important matters of regulatory policy are involved. Illegal insider trading strikes at the integrity of our capital markets and the confidence of investors.”
In its release announcing the decision, the commission also notes that the hearing panel’s decision provides guidance to its staff on the application of its public interest authority in enforcement decisions.