Held, application to adduce fresh evidence dismissed; C’s appeal allowed; other
The proposed fresh evidence did not meet the Palmer test. The affidavit did not
contain any facts or evidence, but essentially consisted of submissions as to how
A and B were impaired in their ability to respond to the allegations against them.
There was nothing in the affidavit that added to the ability of A and B to argue
that issue from the transcript of the hearing. Moreover, there was no evidence
from the expert, or any other source, of any substantive results from the expert’s
efforts to find an alternative source for the material non-public information.
With respect to all of the appellants except C, the panel drew reasonable and
logical inferences from the established facts. There was no basis for questioning
the reasonableness of the panel’s conclusion that F tipped A, who in turn tipped
B. M was tipped by A’s friend LK. His liability was based on s. 76(5)(e) of the
Securities Act. The panel reasonably concluded that M ought to have known that
LK was in the type of special relationship that is contemplated by s. 76(5)(e).
There was no requirement in s. 76(5)(e) to establish that M had the ability to
trace the information back to its originator and that he knew that the original
source was an insider. The test was whether LK ought to have known that the
material non-public information emanated from an insider. If so, LK was caught
by s. 76(5)(e) and that put M squarely in the sights of the same subsection when
LK passed the information on to him. On the evidence, M ought reasonably to
have known that the material non-public information received from LK originated
from an insider. The panel made a number of factual errors in analyzing the
evidence in respect of C. As a result, its finding that C was guilty of tipping and
insider trading could not stand.
A and B were not denied procedural fairness when the panel refused their
request for an adjournment. The panel noted that it had already taken four
years for the matter to reach the hearing stage, that the expert was not going
to be a witness at the hearing, but was only retained to assist counsel, that
A and B were not precluded from bringing forward additional documents or
from giving their own evidence and/or calling any witnesses, and that B had
already been granted an adjournment once. It was open to the panel to conclude that the expert was sufficiently prepared to provide the assistance that
she was retained to provide.
The appellants received administrative penalties of $150,000 for each violation,
which amounted to $450,000 for F, $750,000 for A, $300,000 for B and $450,000
for M. A, B and M were also ordered to disgorge their profits. Those sanctions
were not unreasonable. While A and B complained that the administrative penalties represented multiples of the profits that they earned that were out of line
with other cases, applying a multiplier to the profit earned is only one of the
ways in which an administrative penalty can be tested as to its appropriateness,
and is in fact one of the weaker mechanisms for doing so. As the panel noted,
applying a multiplier to the profit earned does not account for the situation, such
as F’s, where no profit was earned. Further, the fact that a violator of the insider
trading/tipping section of the Act does not earn a profit, or a large profit, does not
diminish the seriousness of the conduct. The ten-year registration bans imposed
on A and B were also appropriate.
R. v. Morrissey (1995), 22 O.R. (3d) 514,  O.J. No. 639, 80 O.A.C. 161,
97 C.C.C. (3d) 193, 38 C.R. (4th) 4, 26 W.C.B. (2d) 436 (C.A.); R. v. Palmer, 
1 S.C.R. 759,  S.C.J. No. 126, 106 D.L.R. (3d) 212, 30 N.R. 181, 50 C.C.C.
(2d) 193, 14 C.R. (3d) 22, 17 C.R. (3d) 34, 4 W.C.B. 171, apld