The Quebec Court of Appeal has revoked a voluntary settlement involving the Autorité des marchés des financiers (AMF) and Daniel Pharand, a former director of Arura Pharma Inc., stemming from allegations that he engaged in insider trading.
Pharand had agreed to the settlement to avoid litigation that would have been much more costly than the $5,000 fine he paid instead. However, it appeared that the AMF made crucial errors by including evidence that Pharand was in possession of specific privileged information regarding the status of a large debt owed by Arura before he sold his shares in the firm when he, in fact, was not.
In a comment on the case, law firm Fasken Martineau DuMoulin LLP noted that the decision, which was handed down last month, is the first time an appellate court in Canada has made such a ruling. (The Ontario Securities Commission has reached similar conclusions in the past).
In the comment, Faskens notes that the apparently privileged information was out of date at the time of the trade: “Interestingly, Mr. Pharand, having already left Arura, was not aware that the debt had been settled at the time that he executed his trade, although he was aware of the existence of negotiations with the creditor.”
The comment notes that one of the most valuable gains for Pharand may be the restoration of his professional reputation as a result of the revoked settlement, which had required him to make certain factual admissions.
The comment also concludes that, as a result of the appeal court’s decision, it can be concluded that “stale, out-of-date or untrue,” information cannot be privileged information that would support a finding of insider trading.
The issue of tipping and insider trading is one of perpetual concern for investment industry firms and their advisors. In another, ongoing tipping case, the Ontario Securities Commission will be holding a hearing early next month into allegations that an executive at Aston Hill Asset Management Inc. tipped colleagues, including senior executives and an advisor at a bank-owned firm, about a proposed multi-billion dollar acquisition by Amaya Inc.