A securities lawyer and several investment advisors who were found to have engaged in insider trading and tipping have been banned from the markets for 10 years and hit with a total of $2.7 million in penalties, costs and disgorgement orders.
The Ontario Securities Commission (OSC) handed down its decision on penalties on Tuesday for former Bay Street lawyer Mitchell Finkelstein and investment advisors Paul Azeff, Korin Bobrow, Howard Jeffrey Miller and Francis Cheng.
Earlier this year, an OSC panel ruled that Finkelstein violated securities rules by tipping inside information on three separate occasions, and that the advisors also engaged in insider trading and tipping based on that information.
Now, the OSC panel has banned each of the five respondents for 10 years, with exemptions allowing them to trade for their personal retirement accounts. Finkelstein, Azeff and Bobrow were also permanently prohibited from becoming a director or officer, while Miller and Cheng are banned from those roles for 10 years.
In terms of monetary sanctions, Finkelstein must pay a $450,000 penalty and $125,000 in costs. Azeff must pay a $750,000 penalty and Bobrow has to pay $300,000. In addition, Azeff and Bobrow were ordered to disgorge $49,996 and $10,217, respectively, which represents their insider trading profits. Azeff was also ordered to pay $175,000 in costs and Bobrow must pay $125,000. Miller and Cheng were ordered to pay administrative penalties of $450,000 and $200,000, respectively, along with $50,000 and $25,000 in costs, respectively, and Miller must disgorge $24,485.
Finkelstein was a partner in the mergers and acquisitions department of Bay Street law firm Davies Ward Phillips and Vineberg LLP when the OSC found that he passed along inside information on a couple of deals he worked on to Azeff, who was an advisor at CIBC Wood Gundy.
“Finkelstein was the instigator of significant consequences to market integrity and must bear responsibility for the chain of events which took place as a result of his breach of confidence,” the OSC panel wrote in its decision.
OSC staff sought a lifetime trading ban and $1.5 million in administrative penalties against Finkelstein. However, the panel also took into account that he’d lost his job, has diminished earning power, modest net wealth and a young family in concluding that a 10-year ban and lesser monetary sanctions would be sufficient.
CIBC Wood Gundy terminated Azeff and Bobrow, but they later found employment as advisors with Euro Pacific Canada Inc. and were granted registration by the Investment Industry Regulatory Organization of Canada (IIROC), subject to strict supervisory conditions.
They sought to remain registered, and the decision notes that the CEO of their current firm also provided an affidavit asking that they be allowed to remain employed as advisors.
“Any registration ban, they say, is akin to professional capital punishment,” the decision notes.
However, the OSC panel ruled that allowing them to remain registered, even with added supervision, “may not be sufficient to protect investors and the capital markets and reflects neither personal deterrence nor general deterrence.
“Azeff and Bobrow violated the most fundamental aspect of the [Securities] Act, insider trading and tipping,” the OSC panel says. “Both insider trading and tipping have been compared to a cancer that damages innocent investors and erodes public confidence in the capital markets. Both types of violations are hard to uncover and the evidence to establish them is painstakingly tedious to assemble.”
The panel adds: “Continued registration for Azeff and Bobrow, even under strict supervision, does not provide a sufficient shield to the market. It would leave Azeff and Bobrow, as registrants, in the milieu where financings and takeover bids are regularly discussed. We have no confidence that Azeff and Bobrow would resist temptation any more in the future than they did in the past. Supervision, while laudable, does not cover the whole day.”
Nevertheless, the OSC panel decided that permanent bans would be excessive and that 10-year bans are appropriate. The panel also found that OSC staff’s request of administrative penalties of $2.25 million for Azeff and $600,000 for Bobrow is too high.
“The appropriate and proper balance that reflects deterrence is an aggregate of administrative penalties totalling $750,000 for Azeff and $300,000 for Bobrow,” the OSC panel says.
Miller and Cheng were advisors at TD Securities Inc. until they were terminated in 2010 and have not worked in the investment industry since. The OSC panel ruled that they should be banned for 10 years, the same ban as Finkelstein, Azeff and Bobrow received.
OSC staff sought a total $1 million in costs against the five respondents, but the panel awarded half that.