Some fortunate investors made huge gains when upstart Montreal gaming company Amaya Inc. announced a nearly $5-billion takeover of online gambling site PokerStars.net last June.
Not just after the deal, but in the days and weeks before, when Amaya's stock price doubled to more than $14 a share in heavy trading. The stock would eventually catapult to near $40.
The frenzied trading activity caught the attention of Canadian and U.S. securities regulators. The U.S. Financial Industry Regulatory Authority (FINRA) recently sought information from Amaya and roughly a dozen of its takeover advisers about potential ties or communications with more than 300 investors who won big before the PokerStars deal.
No one has been charged with insider trading, and Amaya is co-operating in what it has characterized as "routine" inquiries.
If some investors were tipped off by insiders about the takeover, let's all hope regulators get to the bottom of the saga.
But don't bet on it. The track record of successfully prosecuting insider trading in this country is poor, in spite of repeated vows to make this kind of securities fraud a high priority.
Only one person has ever gone to jail in Canada for insider trading. That's partly because of the preference of regulators for pursuing civil charges, where the burden of proof is lower than in criminal cases.
Compare that with the United States, where 23 individuals went to jail for insider trading last year alone. In all, there were 131 criminal and civil convictions in 2014.
Authorities may claim they are determined to combat insider trading in Canada. But the evidence suggests otherwise.
The number of insider trading investigations launched by Canadian regulators has been in decline for years. Just seven investigations were started in 2014, down from 13 in 2013, 19 in 2012 and 31 in 2011, according to figures released last week by the Canadian Securities Administrators, an umbrella group for all provincial securities commissions.
Regulators imposed fines and penalties of $87,850 in insider cases last year – a tiny speck in Canada's $2.5-trillion capital market. And they recouped less than $28,000 in ill-gotten gains.
Worse than the record of prosecutions is the unfortunate message that inaction sends to would-be cheats. The risk of getting caught is next to nil. And even if caught, the punishment isn't a powerful deterrent.
The often-heard justification for the dearth of investigations is that insider trading is tough to prove because cases are built around circumstantial evidence – big trades and communication between investors and insiders, but rarely hard evidence to link the two, or show intent. Canada's splintered regulatory system doesn't help either. And regulators lack some of the investigative tools U.S. authorities have, such as wiretaps.
Regulators have had some success going after relatively lower-level offenders. These are typically people who stumble on insider information, and then clumsily try to profit from it.
But if regulators truly believe insider trading is a scourge, destroying confidence in financial markets by allowing a select few to make unfair gains, they will need to find and punish bigger fish.
The U.S. experience demonstrates that sophisticated market players are out there, systematically gaming the system. We are talking about hedge fund executives, and their world of Wall Street and Bay Street suits.
The Ontario Securities Commission is currently waiting for a ruling in the high-profile case of former Bay Street lawyer Mitchell Finkelstein, who is accused of passing along tips about major takeover deals to a friend who worked as a CIBC investment adviser.
A win in that case would help ease some of the sting of earlier losses, such as the last year's exoneration of two mining executives who made large gains in a takeover of Baffinland Iron Mines Corp. or the 2007 acquittal of Bre-X Minerals chief geologist John Felderhof.
The possibility of catching bigger fish is precisely why the Amaya-PokerStars case is worth watching. As The Globe and Mail's Jacquie McNish and Niall McGee have reported, regulators are looking at trades involving several prominent brokers, money managers, hedge funds and business executives.
It could be a litmus test for Canadian regulators.