The Ontario Securities Commission said Thursday that it would not launch enforcement proceedings in a possible case of insufficient corporate disclosure and improper insider trading in a case involving CP Ships Ltd.

Instead, it has issued a warning letter to the company, and agreed to $1.4 million in restitution paid by four insiders. “In light of the high level of cooperation received from CP Ships and its advisors,” and the OSC’s own policy of providing credit for cooperation, the regulator decided that “it is possible to adequately protect the public interest by issuing a caution rather than commencing formal proceedings.”

CP Ships Ltd. had to restate its financials for fiscal 2002, 2003, and the first quarter of 2004. The OSC says that in its staff’s opinion, once CP Ships’ management decided that it would have to restate its financial results, it should have disclosed this fact to the market.

The firm knew that it would have to restate its results in June 2004, but didn’t know the size of the restatement until early August 2004. However, the OSC suggests this time lag “did not mitigate the responsibility of the company to disclose forthwith the fact that a restatement was required.”

“Issuers need to be cautious that, once an obligation to restate financial statements is identified, that determination may, in itself, be a material change requiring disclosure, even though the [magnitude] of the restatement may not yet have been established,” said Michael Watson, director of enforcement at the OSC.

“Issuers and insiders should be aware that if the forthcoming financial results of an issuer are expected to vary materially from publicly disclosed analysts’ expectations, it is staff’s opinion that this is an undisclosed material fact.”

The OSC also says that four insiders traded in the firm’s shares between May 19 and June 4, 2004 “at a time when the insiders knew that the financial results of CP Ships for the second quarter ending June 30 were expected, based upon internal forecasts, to be materially below publicly disclosed estimates of analysts.” The OSC says in its staff’s opinion, the fact that the financial results would be materially below analysts’ estimates was an undisclosed material fact.

“It is the opinion of staff that the conduct of CP Ships and the above mentioned insiders may not have been in the public interest and that such conduct could have formed the basis of proceedings against them.”

The cooperation by the firm included establishing a special committee to investigate the issue, restitution by the insiders, providing documents, public disclosure of the investigation and revising internal disclosure and insider trading policies. OSC staff also took into account the fact that the traders either articulated their intention to sell shares well in advance of their knowledge of the weak financial results, or had an unrelated reason to sell shares. Staff also noted that the insiders had permission to sell either from the Vice president and general counsel and secretary or the chairman of the firm.

CP Ships and OSC staff have also agreed that the restitution paid to the company by the four insiders will be re-directed to the MFDA Investor Protection Corporation.