Securities Regulators in Quebec and Ontario are making a new push to reverse years of failure in policing illegal insider trading in the stock market.

Prosecuting insider trading offences has proven to be notoriously difficult, and Canada’s securities commissions have only a handful of victories.

But this year, both Quebec’s Autorité des marchés financiers and the Ontario Securities Commission have set up special insider trading investigative units.

In Quebec, an aggressive approach seems to be bearing fruit. The AMF recently announced a series of insider trading prosecutions and, over the past year, the regulator has succeeded in obtaining convictions in a pair of high-profile insider trading cases.

Recently, the AMF brought Quebec Securities Act charges against Richard Quesnel, president and CEO of Consolidated Thompson Iron Mines Ltd., a Toronto Stock Exchange-listed exploration and development company with a large iron-ore project in northern Quebec.

Quesnel is charged with two counts of trading in Cons. Thompson stock while in possession of privileged information, described by the AMF as a feasibility study. Quesnel is also charged with two counts of failing to report to regulators a change in his Cons. Thompson stock holdings within the required 10 days. The AMF is seeking fines against Quesnel totalling $202,461.

Two other individuals, Martial Côté and Patrice Live, are charged with trading in Cons. Thompson shares while in possession of privileged information, having worked on the feasibility study. The AMF is seeking a fine of $22,544 against Côté and $7,217 against Live.

In a separate action, the AMF has requested an administrative penalty against Claude Cajolet, a former director of Engenuity Technologies Inc., for trading in that company’s stock while in possession of privileged information. The AMF has asked the quasi-judicial Bureau de décision et de révision en valeurs mobilières to impose the penalty.

Before those moves, the AMF scored a couple of high-profile wins against illegal insider trading over the past year.

In October 2007, Louis-Philippe Séguin, a former Garda World Security Corp. director, was convicted of illegal insider trading in the company’s stock four years earlier, and was fined $15,000.

In February, Benoît Laliberté, former CEO of Jitec Inc., was convicted on four counts of illegal insider trading, part of the 41 Securities Act convictions he received for his conduct during the spectacular rise and fall of the computer firm in 2000.

In Ontario, it’s been a different story. The OSC has suffered reversals in two celebrated insider trading cases, involving former Royal Bank of Canada investment banker Andrew Rankin and Bre-X Minerals Ltd. geologist John Felderhof.

Felderhof was acquitted last year on four charges of illegal insider trading and four charges of issuing false press releases during the Bre-X affair.

Rankin, meanwhile, was initially convicted of tipping a friend about pending merger deals, but the conviction was overturned on appeal and he later settled with the OSC.

Still, the OSC hasn’t thrown in the towel. This year, it established a team within its enforcement branch dedicated to identifying, investigating and prosecuting illegal insider trading. Another special team is dedicated to fighting stock-trading boiler rooms.

Last year, Michael Watson, who was head of enforcement at the OSC at the time, said the OSC was developing more sophisticated ways to monitor and detect insider trading. He noted a lot of the trading is carried out by people a step removed from defined corporate insiders, making it harder to spot.

Watson told the newspaper that the OSC was developing software to track cases of repeated trading by individuals in advance of corporate announcements. Many such people keep their trading levels low enough that it doesn’t move the stock price, making it harder to detect.

Illegal insider trading occurs when executives, directors, professional service providers or others make trades while in the possession of “material” information not disclosed to the public or tip off others about confidential information.

It has traditionally been difficult to obtain convictions because prosecutors have to prove not only that the accused had knowledge of the confidential information when they traded their shares but that the information was material in that it would have had an impact on the share price.

According to a 2003 report by a Canadian regulators’ task force on the issue: “Any trading on inside information that occurs on the Canadian markets has a direct adverse impact on the fairness and efficiency of those markets, and, as various academic research papers have concluded, consequently on market liquidity and the cost of capital. Even the perception that illegal insider trading is prevalent can cause harm. This is so because it undermines investor confidence in the fairness and integrity of capital markets.”

@page_break@The task force came up with 32 recommendations to improve prevention, detection and deterrence of illegal insider trading.

Another study made public last year suggests insider trading is a big problem. Research firm Measuredmarkets Inc. of Port Hope, Ont., found unusual trading patterns before 33 of 52 Canadian mergers in 2006, valued at more than $200 million. This 63% rate of abnormal trading — an indication of insider trading — was much higher than the 41% found before comparable U.S. mergers.

“We have a bigger problem than the Americans, but there are plenty of places that are worse than ours,” Measuredmarkets president Christopher Thomas says. “The more public exposure there is to this, the greater the incentive there will be to clamp down and the harder it will be for people to behave that way in the future.”

Measuredmarkets identifies anomalies in stock trading and its Web site prominently displays this quote: “The stock market is not highly efficient. Some people know more than others.” IE