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The Ontario Superior Court of Justice has denied a hedge fund’s effort to force the Investment Industry Regulatory Organization of Canada (IIROC) to turn over trading data that the fund says would help unmask a suspected cabal of short sellers that caused millions in trading losses.

Specifically, Bermuda-based hedge fund Harrington Global Opportunities Fund SARL sought an order that would require IIROC to provide data on the trading in the shares of Concordia International Corp., which plummeted between 2016 and 2018, costing the fund $150 million.

According to the court’s decision, “Harrington believes that Concordia and its investors were victimized by a cabal of short-sellers that conspired to manipulate the market to profit at the expense of Harrington and its shareholders.”

In an effort to unmask these shorts, the hedge fund applied to the court for a so-called “Norwich Order” against IIROC, which would require the regulator to turn over information about trading in Concordia securities.

“Harrington believes that with IIROC’s data about Concordia short sellers, it will be able to identify the wrongdoers who illegally manipulated the market price of Concordia shares,” the court notes.

According to the decision, the regulator already provided the fund with some trading data while also carrying out its own investigation into trading in Concordia shares, which concluded that there was no market manipulation. The court says that IIROC found there “was no evidence to support the existence of a cabal of collusive short sellers”; that short positions in the stock were “diverse and unconnected”; and that there was no evidence of manipulation by high frequency traders (HFTs) or day traders.

“Harrington, however, submits that IIROC’s investigation was inadequate and its conclusion unjustified,” the court says, noting that the hedge fund “criticizes the IIROC investigation on a variety of grounds.”

As a result, the fund sought additional data from the regulator in an effort to confirm its suspicions. However, IIROC declined to provide further data, leading the fund to seek a court order.

IIROC argued against granting the order, saying that the hedge fund “has not satisfied any of the requirements” for a Norwich Order, which is “an extraordinary discretionary order that is rarely granted”; that forcing disclosure would violate privacy rights; and, that granting a Norwich Order would interfere with its role as regulator.

“[IIROC] submits that if a Norwich Order were granted it would irreparably harm IIROC’s ability to carry out its regulatory role and set a precedent that undermine the regulatory landscape in general,” the court decision says, adding that the regulator also says that it would also “irreparably harm its co-operation agreements with other regulators including FINRA [the U.S. Financial Industry Regulatory Authority], which has indicated that if IIROC is required to disclose client and broker data, it will be less likely to provide such information to IIROC in the future.”

The court agreed with some of IIROC’s arguments, but not others. Ultimately though, it sided with the regulator in denying the hedge fund’s application.

“The legislated role and duties of IIROC are to do what it did in the immediate case, investigate a complaint and make its own decision about what information, if any, to release,” the court’s decision states. “It is inevitable that a regulator will get ‘mixed up’ in the wrongdoing of the industry it is regulating, but that does not entail that it has a relationship with the wrongdoing or the wrongdoer that would impose a duty in equity to disclose information to the victims of the wrongdoing.”

The court acknowledged that although there is a public interest in private securities enforcement, “it does not follow that the prosecutors in the public sector must share information with the private law prosecutors.”

The court also ruled that “IIROC’s duties of keeping confidences and of protecting privacy interests and its interest in maintaining its relationship with FINRA and other regulators stand against the making of a Norwich Order.”