A former junior employee in the investment banking group at BMO Nesbitt Burns Inc. has been accused of illegal insider trading after buying shares of five companies that were involved in takeover deals.
The Ontario Securities Commission alleges Ming Chao Zhao, also known as Michael Zhao, used a relative’s brokerage account to buy shares of companies that BMO was working with as a financial adviser before their merger and acquisition deals were announced.
The regulator said it has reached a settlement agreement with Mr. Zhao, 28, that will be considered by an OSC panel at a hearing on May 17.
The commission alleges Mr. Zhao “directed” the purchase of shares of five companies using an online discount brokerage account held by a family member with a different last name. After the takeover deals were announced, he allegedly directed the sale of the shares to earn a total profit of $416,000.
The OSC said Mr. Zhao did not disclose the existence of the family brokerage account to BMO as required by the firm’s compliance policies.
Mr. Zhao conducted the alleged trading in 2010 and 2011 while working in Toronto as an investment banking analyst at BMO, where he did financial analysis of companies and compiled data for client pitches including research to support valuations. He worked at BMO from 2009 until he left at the end of 2011.
The OSC alleged he learned details about the takeover deals by accessing a shared computer network drive where confidential documents about merger deals was stored.
He is accused of illegally trading in shares of Menu Foods Income Fund, Consolidated Thompson Iron Mines Ltd., Forzani Group Ltd., Pacific Northern Gas Ltd., and Canmarc Real Estate Investment Trust.
The OSC said Mr. Zhao’s largest purchase was a stake in Canmarc units in late November, 2011, when his family account bought $814,400 worth of securities during a 10-day period prior to the announcement of a takeover offer for Canmarc by Cominar REIT on Nov. 28, 2011. The OSC alleges Mr. Zhao earned a profit of $176,781 on the trades.