When it comes to insider trading, some Canadians have paid more than just the price of a stock. Those that are caught trading on confidential information have faced some of the harshest fines and penalties in Canada.
In this article, we will review some of the biggest cases in Canada's history. To avoid being caught in a similar fallout, it is important to consult a corporate finance lawyer and keep sensitive information confidential.
What are the worst insider trading cases in Canada?
In no particular order, here are some of the most significant insider trading cases in Canada, based on the fines and penalties imposed:
- In the Matter of Stanko Joseph Grmovsek and Gil I. Cornblum
- Finkelstein v. Ontario Securities Commission, 2018 ONCA 61
- The case of Harpreet Saini
We'll discuss these cases below. You can also use the table of contents to navigate to these cases.
One of the largest insider cases in North America is that of a Wall Street hedge fund called SAC Capital, which paid a US$1.8 billion fine in a settlement.
Here's a video about the SAC Capital case:
Reach out to the best corporate finance lawyers in Canada as ranked by Lexpert for if you want to learn more about the biggest securities law violations.
In the Matter of Stanko Joseph Grmovsek and Gil I. Cornblum
Penalty: $1.2 million
Grmovsek and Cornblum's case tops our list of the worst insider trading cases in Canada. This case spanned more than a decade and involved illegal exchange of information across several firms in Canada and the US, resulting in about US$9 million in illegal profits.
The decade-long insider trading
In its decision, the Ontario Securities Commission (OSC) stated that Grmovsek and Cornblum collectively engaged in illegal insider trading and tipping from 1994 to 2008. During this period, Cornblum worked as a lawyer for several law firms in Canada and the US. He would then seek out and acquire material, non-public information (MNPI) on pending corporate transactions through his role in the firms he was working for.
Cornblum would then give the MNPI to Grmovsek, who would then trade in securities of the corporations involved. Grmovsek traded these securities using several brokerage accounts, located either in Ontario or in the Bahamas. He also used accounts belonging to family and friends, who were unaware of the illegal transactions.
The investigations and consequences
Investigations began in 2008 by the OSC and US authorities, including the Securities and Exchange Commission and the Department of Justice. The OSC alone found 46 transactions where the two worked together since 1994.
In October 2009, Grmovsek struck a settlement with the OSC. Cornblum died by suicide just before the settlement was reached.
The penalties for Grmovsek
For violating Ontario's Securities Act (OSA), such as sections 76(1) and (2), the settlement between the OSC and Grmovsek provided for the following penalties:
- $1,033,000 ($750,000 plus $283,000) for violating the OSA
- $250,000 for the costs of investigations
- permanently prohibiting Grmovsek from:
- trading securities
- becoming an officer or a director of any issuer or OSA registrant
- becoming an officer, director, or registrant in an investment fund
- exemptions will not apply to Grmovsek permanently
Finkelstein v. OSC
Penalty: A total of $2.6 million for five violators
In a 2018 decision by the Ontario Court of Appeal, the court affirmed the decision of OSC's hearing panel that held several persons liable for the following penalties:
- Paul Azeff:
- $750,000 as administrative penalty
- $175,000 for costs
- Korin Bobrow:
- $300,000 as administrative penalty
- $125,000 for costs
- Man Kin (Francis) Cheng:
- $200,000 as administrative penalty
- $25,000 for costs
- Mitchell Finkelstein:
- $450,000 as administrative penalty
- $125,000 for costs
- Howard Jeffrey Miller:
- $450,000 as administrative penalty
- $50,000 for costs
These administrative penalties are based on the number of times they committed illegal tipping or insider trading. These are in addition to the hearing panel's order that they return the profits that they made from the illegal transactions.
The chain of trading info and tipping
To commit illegal insider trading and tipping, the group worked as a chain, starting from Finkelstein leading down to Cheng. This chain served to pass the information about the takeover bid that Masonite International Corporation is involved in.
The chain started with Finkelstein, who tipped his close friend Azeff about the MNPI regarding Masonite. Finkelstein acquired this information through his work as a corporate lawyer, when he was working on the takeover case involving Masonite.
Azeff then gave the same information to Bobrow, who passed it to a Montréal accountant named L.K. From here, it was further passed to Miller, a Toronto-based investment advisor and finally to Cheng, who was Miller's associate and also an investment advisor.
Bases for the penalties
The court said that the downside tippees, or those after Finkelstein in the chain, are guilty of violating Section 76 of the OSA. Under the law, these tippees must have known that they're receiving insider information.
Specifically, the panel found that:
- Azeff, Bobrow, Miller, and Cheng violated Section 76(1) of OSA, when they engaged in insider trading, in addition to the finding that they acted contrary to public interest
- Finkelstein violated Section 76(2) of OSA, as he engaged in insider tipping when he provided the subject MNPI to Azeff, considering his special and professional relationship to Masonite
Also, this case ruled that circumstantial evidence can be used to determine if insider trading or tipping was committed. The court acknowledged the secretive nature of these offences, which often results in a lack of direct evidence. As such, circumstantial evidence can be used to fill in the gap and support the allegations that the tippee knew that they're receiving inside information.
The case of Harpreet Saini
Penalty: $1.4 million and imprisonment
Another recent and significant insider trading case in Ontario involved Harpreet Saini. Just in August this year, the OSC announced that it sentenced Saini for the following penalties after being found guilty of violating the OSA:
- six years imprisonment
- fine of $1,249,114.93
- 25% mandatory fine surcharge
- trading bans for 10 years
The ploy and the penalties
In 2021, Saini traded securities after accessing several MNPI through his employer, a newswire distribution network for corporate press releases. Saini used information from unpublished press releases to trade securities before the information became public. This allowed him to trade securities 553 times based on 497 unpublished press releases from his employer.
The OSC filed charges against Saini and his co-accused, John Natividad, in 2022 for violating Section 76 (1) of Ontario's Securities Act. According to OSC, Saini's total illicit gain is around US$770,000 from the securities trading activities using the MNPI.
The charges against Natividad are still pending.
How can lawyers help clients with the laws on insider trading?
There are several ways that lawyers can help clients when it comes to dealing with securities laws to prevent insider trading:
- know who is covered by the law: a lawyer can explain what constitutes insider trading and who qualifies as an insider, such as company directors, officers, and shareholders
- apply the lessons from cases: when worst cases of securities law violations happen, lawyers are quick to advice their clients on what to do (and not to do) based on these cases' facts and the circumstances
- guide through the reporting requirements: since Canadian securities law requires issuers to file insider reports with their provincial securities regulator, lawyers can help ensure these reports are accurate
- representation in investigations: if a client is investigated for securities law offences, a corporate finance lawyer can provide representation and legal advice
Lawyers can also discuss the lessons that can be learned from these cases, whether they're committed in or out of Canada, such as the cases in this video:
Check out our directory of Canada's Largest Firms if you're looking for firms to help you with the laws governing securities and their violations.
Insider trading cases: Lessons learned for corporations
Canada's largest insider trading fines show that violations can result in significant penalties. Regulators monitor markets closely, and even minor infractions can lead to public exposure and fines.
For anyone working in or around public companies, the message is clear: when in doubt, check with a legal expert before making a move. Because, as they say, staying compliant with the law is always the best investment.
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