Before beginning its analysis, the Ontario Divisional Court (the court) provided the following commentary at paragraph 25 setting out the proper approach for the appellate review of the OSC’s decision:

Before beginning my analysis of each of the appeals, I want to discuss what I consider to be the proper approach to appellate review of a tribunal’s decision. Appellate review does not require a minute examination of each piece of evidence or of each witness. It does not require a response to every argument advanced or every challenge made to the findings below. Nor does it require a re-writing of the tribunal’s decision or a re-examination of every aspect of the case. What is required is a general review of the process used by the tribunal in arriving at its factual findings, the analysis undertaken, the legal principles applied, and the ultimate result reached, all with a view to determining whether that result is a reasonable one. Appellate review also does not turn on being able to point to a single error in the tribunal’s reasons, or to one error of fact, unless that error goes to a core finding. It is not unheard of to find small individual errors in lengthy reasons arising out of a complex proceeding. Reasons are seldom perfect. The real question is whether any such errors are fundamental to the reasonableness of the conclusion reached. [Emphasis added.]

Not surprisingly, the court showed its usual deference to the OSC and held that there was no basis for questioning the reasonableness of the OSC’s decision against the appellants except in Cheng’s case. The court found that the OSC made factual errors in its analysis of the evidence against him, which ultimately undermined the foundation on which the OSC concluded that Cheng ought to have known that he was receiving MNPI. The balance of this article will discuss why Cheng was successful in his appeal.

Cheng Appeal
To summarize, the OSC found that Finkelstein passed MNPI about the Masonite transaction to Azeff who, in turn, passed it to LK. LK was Azeff’s accountant and his good friend. LK, who lived in Montreal, telephoned Miller, his friend and senior investment adviser with TD in Toronto and told Miller about Masonite. Miller then told Cheng, his associate. The OSC held that Cheng ought to have known that the MNPI originated from an insider.

Before beginning its review of the OSC’s findings against Cheng, the court pointed out that there were factual differences between Cheng’s relationship with Miller and that of the other appellants. These differences were: Miller and Cheng were not friends; they did not socialize or otherwise have contact outside of the workplace; and although they eventually became partners at TD, this did not occur until 2007, long after the Masonite transaction.

The OSC held that Cheng ought to have reasonably known that Miller was in a special relationship with Masonite based on the following four factors:
1. Miller was Cheng’s mentor and supervisor;
2. Cheng sent an email to a client that the Panel found demonstrated Cheng’s belief in the reliability of the MNPI;
3. Cheng did not make any inquiries on the source of Miller’s information about Masonite; and
4. Cheng’s purchases of Masonite shares.

Mentor and Supervisor
The court found the evidence did not establish that Miller was Cheng’s mentor and supervisor. In fact, the court found that the contrary was true since Cheng stated in his compelled interview that, “[Miller] wasn’t a mentor or anything like that, that got assigned to me.”

The Email
The OSC placed significant importance on an email that Cheng had sent to a client, with whom he had a difficult relationship, about the Masonite transaction. Cheng stated in this email that he was buying Masonite for his clients because it was expected to earn a 20% return before Christmas. The OSC concluded that Cheng would not have risked passing speculative information, which could have proven to be wrong, to an already complaining client.

The court found that although the OSC’s conclusion was one inference that could have been drawn from Cheng’s email, it was not the only one. The court stated that it could equally be the case that Cheng was making one last attempt to salvage his relationship with this client. The court further held that the OSC’s inference was not a strong one nor did it provide a solid foundation for the OSC’s final conclusion that Cheng breached the tipping, insider trading, and public interest provisions of the Act.

Further Inquiries
The court stated that the failure to make further inquiries does not necessarily avoid the effect of the expanded definition of “special relationship” of the Act , and highlighted that the question to ask will always be whether, in the particular circumstances, further inquiries about the source of information was required.

It was Cheng’s normal practice after hearing a “rumour” to check the Newswire for a few weeks or months depending on the circumstances and review the stock’s chart. He would also talk to other people to determine if any of them had heard the same rumour. The court found that the OSC failed to consider all of the facts related to Cheng, including his explanation, before concluding he ought reasonably to have known that the source of the MNPI was an insider.

Purchases
The OSC found that Cheng “precipitously” bought a large position for himself and his family. It was not clear to the court why the OSC concluded Cheng’s purchases were precipitous. Although he purchased shares for his family, he did not purchase any for himself. While it was true he purchased large positions in some of his family’s accounts, it was also true that the dollar value of those positions was small. The OSC’s lead investigator acknowledged at the hearing that the trading of Masonite shares in the accounts was not unusual given the overall trading history of those accounts.

When determining whether purchases were the result of inside information, the court stated:

In reaching their conclusions, the [OSC] was entitled to take into account the large position taken, in Masonite, in these accounts. However, before drawing a negative inference from the fact that a large position was taken in Masonite, the [OSC] was obliged to consider the history of the accounts. The [OSC] was also obliged to consider the relative dollar value of those positions. That was a necessary step in evaluating the reasonableness of drawing the inference that the purchases were the result of inside information.

The court held that the OSC failed to carry out the proper analysis of Cheng’s purchases of Masonite.

Result
The court held that the OSC had stated the following evidence incorrectly: Miller was Cheng’s mentor/supervisor when they did not have such a relationship; and Cheng purchased shares for himself when he did not. The court set aside the OSC’s decision against Cheng as well as the sanctions imposed on him.

This article contains general information only and is not intended to provide a legal opinion or advice. Please consult a lawyer for matters related to your situation before relying on any of the statements made in this article.

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Recommendation

(3.1)  No issuer, no person or company in a special relationship with an issuer, and no person or company that is considering or evaluating whether, or that proposes to take one or more of the actions described in clause (3) (a), (b) or (c)[1] shall recommend or encourage, other than in the necessary course of business, another person or company to purchase or sell securities of the issuer with the knowledge of a material fact or material change with respect to the issuer that has not been generally disclosed.

Before adding this new subsection, the Act only addressed “tipping” by prohibiting a person in a special relationship with an issuer from informing another person about MNPI of that issuer (except in the ordinary course of business). The Ontario Securities Commission (OSC) previously dealt with recommending or encouraging a trade by relying on its power to protect the public interest. This was particularly apparent in the Finkelstein decision where the OSC held certain respondents to have acted contrary to the public interest by recommending, with knowledge of MNPI, the purchase of shares. The purpose of adding this new subsection was to close the apparent gap in the insider trading rules and further address white collar crime.

[1]   3 (a) to make a take-over bid, as defined in Part XX, for the securities of an issuer; (b) to become a party to a reorganization, amalgamation, merger, arrangement or similar business combination with an issuer; or (c) to acquire a substantial portion of the property of an issuer.

This article contains general information only and is not intended to provide a legal opinion or advice. Please consult a lawyer for matters related to your situation before relying on any of the statements made in this article.

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Background

Hariharan’s close childhood friend, Satish Talawdekar (Talawdekar) was a manager in the IT department of MacDonald, Dettwiler & Associates Inc. (MDA). Talawdekar worked in MDA’s Brampton office and both resided in Mississauga.

Talawdekar learned that MDA was acquiring a major subsidiary of Loral Space & Communications Inc. (Loral) before MDA publicly announced this acquisition. Although listed on the NASDAQ, Loral was not a reporting issuer in Ontario. The sequence of events was as follows:

• On June 21, 2012, Talawdekar learned of the MNPI that MDA was going to be part of a major, transformative acquisition;
• On or about June 25, 2012, Talawdekar learned further details of the acquisition, including that the target acquisition was a Loral subsidiary;
• Beginning later that day and the following day, Talawdekar telephoned Hariharan and told him of the MNPI;
• On June 26, 2012, Hariharan purchased 220 Loral call option contracts for a cost of $11,019.90;
• At 9:25pm on June 26, 2012, MDA announced its acquisition of the Loral subsidiary;
• On June 27, 2012, one day after the announcement, the closing market price of MDA shares increased 28% and Loral shares, 13.2%;
• On June 27, 2012, Hariharan sold all 220 Loral option contracts, realizing a profit of USD$68,683.40, a 623% return in one day; and
• On June 29, 2012, MDA issued a material change report about its acquisition.

The Settlement Agreement and Order

The settlement agreement prohibited Hariharan from trading in securities for a period of 10 years. He was, however, permitted to trade in his personal and joint registered retirement savings plan accounts. Hariharan agreed to make a voluntary payment of $35,000 to the OSC and pay costs of $5,000.

The settlement agreement indicated that although Hariharan’s conduct did not technically breach the insider trading provision in section 76(1) of the Securities Act (Ontario) (the Act) because Loral was not a reporting issuer in Ontario, his conduct impugned the integrity and fairness of the capital markets because he used MNPI to purchase securities. As a result, the OSC held that Hariharan’s conduct was contrary to the public interest under sections 127 and 127.1 of the Act and issued the Order approving the settlement agreement.

Significance

This settlement agreement is noteworthy because it shows the OSC’s willingness to extend the principles of insider trading in circumstances where there has been no direct breach of this provision in the Act. It further shows the OSC’s readiness to police any inappropriate use of MNPI, whether such misuse relates to a reporting issuer or non-reporting issuer.

This article contains general information only and is not intended to provide a legal opinion or advice. Please consult a lawyer or compliance advisor for matters related to your situation before relying on any of the statements made in this article.

The post The Ontario Securities Commission Applies the Principles of Insider Trading to a Non-Reporting Issuer in a Settlement Agreement appeared first on Thauli Law.

On March 24, 2015, the Ontario Securities Commission (OSC) released its decision against a former mergers and acquisition lawyer, Mitchell Finkelstein (Finkelstein) and four investment advisors (together, the respondents) in a high profile tipping¹ and insider trading² decision. OSC staff alleged that Finkelstein tipped his long-time friend, Paul Azeff (Azeff), an investment advisor, about six impending takeover transactions between November 2004 to August 2007, and that Azeff and three other investment advisors engaged in tipping and insider trading for themselves, family members, and clients while in possession of material non-public information (MNPI), contrary to the Securities Act (Ontario) (the Act). Staff further alleged that these investment advisors acted contrary to the public interest by recommending the shares of target companies, about to be purchased, to their friends, families, and clients.

Finkelstein worked in Toronto for Davies Ward Phillips and Vineberg (Davies) whereas Azeff worked in Montreal as an investment advisor for CIBC. The pattern of conduct alleged was that Finkelstein contacted Azeff shortly before the public announcement of each takeover transaction. Azeff passed on the MNPI to his partner, Korin Bobrow (Bobrow) with whom he shared a trading code, DK4. They told friends about the imminent transactions, including LK. LK was Azeff’s accountant and his good friend. LK lived in Montreal. LK then telephoned his friend and senior investment adviser with TD in Toronto, Howard Miller (Miller). Miller then told his associate, Francis Cheng (Cheng).

The main legal issues that the OSC panel examined for each transaction were:

1. What were the undisclosed material facts?
2. Was there communication of the undisclosed material facts (tipping) by someone in a special relationship such as an officer, director or advisor engaged in some aspect of the transaction?³
3. Did the tippee or successive tippee know or ought he reasonably to have known that he was receiving undisclosed material facts from someone himself in a special relationship? ⁴

The OSC panel determined, on the balance of probabilities, that Finkelstein tipped Azeff, who then tipped Bobrow on three of the six takeover transactions, and that Azeff and Bobrow committed insider trading on such information in one of the three transactions; and they further acted contrary to the public interest by recommending shares of target companies to others. Miller and Cheng were held to have committed tipping and insider trading in one transaction and also acted contrary to the public interest by recommending shares to others in this instance.

This highly anticipated decision is particularly noteworthy because it highlights the OSC panel’s willingness to admit circumstantial evidence and other indirect evidence to draw inferences that the respondents breached the Act by engaging in tipping, insider trading or both. The panel found that in three transactions, there was no reasonable explanation for the sequence of events other than to conclude that Finkelstein had tipped Azeff who then passed the MNPI to others.

Circumstantial Evidence

The evidence to establish that the respondents committed the alleged wrongdoings, on a balance of probabilities, must be clear, convincing, and cogent. In cases of insider trading and tipping, the OSC panel indicated that circumstantial evidence is admissible and includes:

• unusual trading patterns;
• a timely transaction in a security shortly before a significant public announcement;
• a first time purchase of the security;
• an abnormal concentration of trading by one brokerage firm or with one or a few brokers; and
• a trade that represents a very significant percentage of the particular portfolio.

The panel noted that motive and intent can also be weighed as facts when drawing inferences about whether the alleged wrongdoing occurred. The panel found that Finkelstein lacked motive in tipping his friend, Azeff but ultimately held that this factor did not matter.⁵

Special Relationship with a Successive Tippee

Although it is not difficult to establish that a lawyer or investment advisor engaged in a professional activity with a reporting issuer is in a special relationship, the OSC panel explained that it becomes increasingly difficult to determine whether a successive tippee (such as Bobrow, Miller, and Cheng) knew or ought to have known that the MNPI came from someone in a special relationship. To satisfy this requirement for a successive tippee, the panel set out two tests that must be met. The first test is there must be an “information connection” to the issuer (i.e. possession of inside information). This test is not difficult to satisfy because it simply involves comparing what information the tippee had with the information that was publicly available at the relevant time.

The second test is there must be a “person connection”. This test is harder to satisfy. It is an objective test and requires asking: Should a person standing in the shoes of the tippee, reasonably assume that the MNPI passed on to him originated with a person whom the panel referred to as a “knowledgeable person”? A knowledgeable person is anyone acting for a party to a transaction and includes officers, directors, insiders, professional advisers, lawyers, bankers, and accountants.⁶

Put more simply, did the tippees who were two or three times removed from Finkelstein know or ought reasonably to have known that the information they received was MNPI that originated with an insider. The panel then set out the following list of factors to be considered:

• What is the relationship between the tipper and tippee? Are they close friends? Do they also have a professional relationship? Does the tippee know of the trading patterns, successes, and failures of the tipper?
• What is the professional qualification and standing of the tipper? Does the tipper have a profession (e.g. lawyer or investment advisor) putting him in a milieu where transactions are discussed?
• What is the professional qualification of the tippee? Does his profession put him in a position to know that he cannot take advantage of confidential information, which therefore imposes a higher standard of alertness on him than a member of the public?
• How detailed and specific is the MNPI? Does it include information that a takeover is occurring or information about its price, structure, and timing?
• How long after the tippee receives the MNPI does he trade?
• What intermediate steps before trading does the tippee take, if any, to verify the information received?
• Has the tippee ever owned the particular security before?
• Was the trade a significant one given the size of the tippee’s portfolio?

Contrary to the Public Interest

The OSC panel made it clear that “contrary to the public interest” is a discretionary concept that is not a substitute for a near miss of an essential element of a breach. Therefore, if a required element of an alleged breach of a specific section fails to be established, the allegation must be dismissed. However, if the conduct reviewed on its own is contrary to the objectives of the Act and harms investors or abuses confidence in the capital markets, the panel may make a finding that the conduct is not in the public interest.

Proving the Allegations of Tipping and Insider Trading with Circumstantial Evidence

OSC staff submitted substantial circumstantial evidence to show: when Finkelstein learned of the MNPI; when he communicated to Azeff; when Azeff and the other tippees communicated to friends, family members, and clients; the timing of purchases of shares among the tippees; and the trading volume. The OSC panel ultimately held that there was sufficient evidence to draw the inference that Finkelstein tipped Azeff in three of the six transactions, namely Masonite International Corporation (Masonite), Legacy Hotel REIT (Legacy), and Dynatec Corporation (Dynatec) and Azeff passed the MNPI to other tippees. The Masonite transaction was the only transaction where all of the respondents were held in breach of the Act. Finkelstein, Azeff, and Bobrow were held in breach in all three transactions. The following discussion will summarize some of the key evidence that the panel examined to arrive at its decision.

Finkelstein was the lawyer directly involved with the Masonite takeover of another company and Legacy’s takeover by an offeror consortium. He was not involved in Dynatec’s transaction but Davies was retained as counsel to advise a special committee established by Dynatec’s board. Before any public announcements of these transactions, OSC staff showed that Finkelstein knew of the MNPI.

A few months before the Masonite announcement, Finkelstein provided legal services such as reviewing the change of control provisions in the compensation agreements of senior officers and a standstill agreement. He assembled Masonite’s credit agreements for review by the potential target. He and other Davies’ lawyers attended a crucial meeting about five weeks before the announcement during which it became evident that Masonite intended to proceed with its takeover. He was also aware of the takeover price. Finkelstein was also the principal lawyer on the Legacy transaction. Before the Legacy announcement, he knew that the offeror consortium had submitted a bid to takeover Legacy, a deal which was likely to close. He also knew the date of the public announcement. As the lawyer for Masonite and Legacy, the OSC panel held that Finkelstein was in a special relationship with them.⁷

Although Finkelstein was not involved in the Dynatec transaction, he accessed transaction documents such as the voting agreement, the indicative timetable showing the timing of the public announcement, and the combination agreement. OSC staff was able to show the dates and times when Finkelstein accessed these documents, all of which occurred before the public announcement of the Dynatec transaction. The OSC panel held Finkelstein was in a special relationship with Dynatec.⁸

To show the relationship between the parties, OSC staff submitted significant phone records during the relevant times. Phone records included: home phone records that showed long distance calls between Finkelstein and Azeff; cell phone records of Finkelstein and Azeff; Davies’ phone records; and CIBC phone records showing calls from and to the extensions used by Azeff, Bobrow, and their assistant. Staff did not have any audio recordings or transcripts of the calls’ contents. The phone records were used to show the dates and frequency of calls and the timing of trades in relations to these calls. Staff did not have nor was there any email correspondence between Finkelstein and Azeff about any of the six transactions.

Relying considerably on the timing of phone calls between Finkelstein and Azeff and the sudden and voluminous purchasing by Azeff, Bobrow, their family members or clients, the OSC panel found that Finkelstein passed on the MNPI about Masonite, Legacy, and Dynatec to Azeff. The OSC panel held that Azeff was in a special relationship with these three companies because he knew or ought to have known that Finkelstein was in a special relationship with them.⁹

In further support of the OSC panel’s finding that Finkelstein passed on MNPI to Azeff, the panel made observations about Finkelstein’s demeanour at the hearing and stated, “Finkelstein’s manner of giving evidence lacked spontaneity and was well rehearsed. Often he would answer questions from his own counsel by indicating that they would be coming to that evidence later. He left the impression that his evidence was tightly controlled. The substance of his testimony ignored or touched lightly upon important elements that needed explanation.” In particular, the panel noted: Finkelstein spoke very little of his relationship with Azeff during the relevant timeframe of 2004 to 2007; Finkelstein did not explain why he spoke to Azeff dozens of times or why there were 190 calls between them in 2007; and Finkelstein made it clear that they were not talking about his small investment account with Azeff.¹⁰ As a result, the panel gave less weight to Finkelstein’s subjective testimony than to the objective facts.

The OSC panel inferred that Azeff informed Bobrow about the MNPI. Bobrow was Azeff’s long-time partner and they acknowledged in their testimony at the hearing that they shared clients and information. The timing of the phone calls between Finkelstein and Azeff corresponded with purchases that Azeff and Bobrow made for themselves, family members, and clients. Some of their purchases represented high volumes of trading. In the case of Masonite, for example, their purchases in one day through their DK4 trading code represented 48% of the volume traded on the TSX, 32.5% of the combined volume on the TSX and NYSE, and 97% of the CIBC purchases. In fact, Azeff and Bobrow purchased Masonite shares for more than 100 DK4 accounts before the public announcement of Masonite’s takeover transaction. OSC staff also pointed to emails and text messages between Bobrow and a very close friend and client, who purchased shares before the public announcements. The OSC panel held that Bobrow had all the same knowledge and information as Azeff and he was therefore in a special relationship with Masonite, Legacy, and Dynatec because he knew or ought to have known that Azeff was in a special relationship.¹¹

LK testified at the hearing that he learned of the MNPI about the transactions from Azeff. The timing of phone calls between Azeff and LK corresponded to LK’s subsequent purchases of shares.

Miller and Cheng did not testify at the hearing, so staff submitted their transcripts from their compelled interviews in which they made admissions about how they learned of the MNPI. This analysis will focus only on the Masonite transaction. Miller first became interested in Masonite after he received a phone call from LK. LK confirmed that he told Miller about Masonite and testified at the hearing that he spoke to Miller after his discussion with Azeff. OSC staff then pointed to emails from Miller to a client. In one email string, Miller told his client that he had “a tip” and responded that the issuer was Masonite when asked by his client. Another email string had details of the Masonite transaction, including the cash consideration, before the takeover was publicly announced.

Cheng admitted that he learned of the Masonite transaction from Miller in his compelled testimony and Miller also admitted sharing information about Masonite with Cheng. OSC staff pointed to an email from Cheng to a client in which Cheng stated that he was buying Masonite for clients because a 20% return was expected before Christmas.¹² The panel noted that this particular client had previously complained about Cheng. Miller and Cheng did not give any explanations for their own purchases of Masonite shares, which were their first purchases and the largest positions in each of their portfolios. Miller and Cheng recommended Masonite to family members and clients and purchased shares on their behalf. In fact, Cheng’s purchases of Masonite shares on his wife’s behalf represented 98% of her portfolio’s value.

The OSC panel stated that determining whether Miller and Cheng were in a special relationship was more difficult to assess. It had to be determined that LK, when he received the MNPI from Azeff, knew or ought reasonably to have known that Azeff was in a special relationship with Masonite, that is, that Azeff knew or ought to have known that the MNPI came from a knowledgeable person. It also required determining that Miller, when he received the MNPI from LK, knew or ought reasonably to have known that LK was in a special relationship with Masonite, that is, that LK knew or ought reasonably to have known that the MNPI came from a knowledgeable person.

The OSC panel found that Miller and Cheng did not know that the MNPI that Miller received from LK and that Cheng received from Miller came from a knowledgeable person. The panel then focused on whether Miller and Cheng ought reasonably to have known that the MNPI came from a knowledgeable person and reviewed the following factors:

• LK and Miller knew each other for a long time and re-established a friendship in 2002/2003 and often spoke by phone. Their conversations focused on their professional work in that LK asked Miller about the markets and Miller asked LK for tax and accounting advice. They had mutual respect for each other’s professions and expertise.
• Miller knew that LK who was a partner in a well-known Montreal accounting firm had business relationships with friends involved in transactions.
• Miller, as a senior investment adviser, knew or was deemed to know the prohibition on trading on MNPI, so a higher standard of alertness was expected of him than a member of the public.
• Miller received detailed and specific information about the Masonite takeover transaction from LK, but he did not ask how LK knew this information. Cheng similarly failed to ask Miller how Miller knew about the Masonite transaction. Neither Miller nor Cheng carried out any independent research.
• Miller and Cheng purchased a significant number of Masonite shares, which neither of them had previously owned.
• Cheng advised a client in an email to purchase Masonite shares. The OSC panel stated that Cheng would not have risked passing along speculative information, which may prove wrong, to a client who had previously complained about him.

The OSC panel held that Miller ought reasonably to have known that LK was in a special relationship with Masonite and the MNPI originated with a knowledgeable person, and similarly held that Cheng ought reasonably to have known that Miller was in a special relationship with Masonite and the MNPI originated with a knowledgeable person.¹³

In the Masonite transaction, the OSC panel held: Finkelstein, Azeff, Bobrow, Miller, and Cheng breached the tipping subsection of the Act; Azeff, Bobrow, Miller, Cheng breached the insider trading subsection of the Act; and they also acted contrary to the public interest by recommending, with the knowledge of MNPI, that clients purchase Masonite shares. In the Dynatec and Legacy transactions, the OSC panel held: Finkelstein, Azeff, and Bobrow breached the tipping subsection of the Act; and Azeff and Bobrow acted contrary to the public interest by recommending, with the knowledge of MNPI, that clients purchase Masonite and Legacy shares. Azeff and Bobrow were not held in breach of the insider trading subsection of the Act in the Dynatec and Legacy transactions because they did not purchase shares for themselves.

Tipping and Insider Trading Cases Going Forward

The OSC has made it abundantly clear that it is an administrative tribunal and not a criminal court. Accordingly, as a tribunal, it will allow the admissibility of circumstantial evidence to prove allegations of tipping and insider trading. There is no doubt that other commissions will follow the OSC’s lead in these types of cases.

In a Financial Post article dated March 26, 2015, Finkelstein’s lawyer, Gord Capern said that he expected to receive instructions to appeal this decision. It has yet to be seen whether an appeal has been filed by Finkelstein or the other respondents. This may prove difficult given the law is clearly laid out in this decision and the facts and evidence are carefully examined.¹⁴ The hearing on sanctions is currently scheduled for May 21, 2015.

This article contains general information only and is not intended to provide a legal opinion or advice. Please consult a lawyer or compliance advisor for matters related to your situation before relying on any of the statements made in this article.

1. The definitions in section 76 of the Securities Act (Ontario) (the Act) during the relevant timeframe from 2004 to 2007 were different from the definitions as they appear today in the Act. Although there are similarities between the definitions, there are also noticeable differences. The definitions of section 76 in this article are from the relevant period. Tipping was defined in subsection 76(2) of the Act as follows:
   Tipping
   76(2) No reporting issuer and no person or company in a special relationship with a reporting issuer shall inform, other than in the necessary course of business, another person or company of a material fact or material change with respect to the reporting issuer before the material fact or material change has been generally disclosed.
2. Insider trading was defined in subsection 76(1) of the Act as follows:
   Trading where undisclosed change
   76(1) No person or company in a special relationship with a reporting issuer shall purchase or sell securities of the reporting issuer with the knowledge of a material fact or material change with respect to the reporting issuer that has not been generally disclosed.
3. Subsections 76(5)(a) to (d) were defined as follows:76(5) For the purposes of this section, “person or company in a special relationship with a reporting issuer” means,(a) a person or company that is an insider, affiliate or associate of,
   (i) the reporting issuer,
   (ii) a person or company that is proposing to make a take-over bid, as defined in Part XX, for the securities of the reporting issuer, or
   (iii) a person or company that is proposing to become a party to a reorganization, amalgamation, merger or arrangement or similar business combination with the reporting issuer or to acquire a substantial portion of its property,(b) a person or company that is engaging in or proposes to engage in any business or professional activity with or on behalf of the reporting issuer or with or on behalf of a person or company described in subclause (a) (ii) or (iii),(c) a person who is a director, officer or employee of the reporting issuer or of a person or company described in subclause (a) (ii) or (iii) or clause (b),(d) a person or company that learned of the material fact or material change with respect to the reporting issuer while the person or company was a person or company described in clause (a), (b) or (c).
4. Subsection 76(5)(e) of the Act had the following expanded definition of special relationship, which captured successive tippees:76(5)(e) a person or company that learns of a material fact or material change with respect to the issuer from any other person or company described in this subsection, including a person or company described in this clause, and knows or ought reasonably to have known that the other person or company is a person or company in such a relationship.
5. Finkelstein deposited cash totalling $36,750 in four instances after the public announcement of one of the six transactions. Finkelstein testified that it was his father’s practice to keep cash at home as a means of protecting his savings and the cash came from his own income or gifts from family and friends. Although the OSC panel thought his cash habits were strange, the panel accepted his explanation and noted that OSC staff did not ask any relevant questions of Finkelstein about the cash allegation in cross-examination.
6. The OSC panel stated that a knowledgeable person includes all those persons in section 76 of the Act.
7. The OSC panel held that Finkelstein was in a special relationship under subsection 76(5)(b) of the Act.
8. The OSC panel held that Finkelstein was in a special relationship under subsection 76(5)(c) as an employee of Davies or under the expanded definition of special relationship in subsection 76(5)(e) of the Act.
9. The OSC panel held that Azeff was in a special relationship under the expanded definition in subsection 76(5)(e) of the Act.
10. Finkelstein had a small investment account of approximately $90,000 with Azeff, but both testified at the hearing that Azeff never recommended or discussed the purchase of any shares with Finkelstein. The panel surmised that this may have been because Azeff knew Davies was the law firm involved with the transactions or none of the shares was suitable for Finkelstein’s account.
11. The OSC panel held that Bobrow was in a special relationship under the expanded definition in subsection 76(5)(e) of the Act.
12.  The Masonite takeover transaction was announced on December 22, 2004.
13. The OSC panel held that Miller and Cheng were in a special relationship under the expanded definition in subsection 76(5)(e) of the Act.
14. Alan J. Lenczner, QC of Lenczner Slaght wrote this decision and is recognized as one of Canada’s leading litigators.

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