Finkelstein loses appeal of OSC ruling on insider trading

Former Bay Street lawyer Mitchell Finkelstein has lost his appeal of an Ontario Securities Commission decision that he tipped a long-time friend about takeover deals, but an Ontario court has overturned the findings against another person involved in the case.

The Ontario Divisional Court, which hears appeals of OSC decisions, allowed the appeal of Man Kin (Francis) Cheng, a former investment adviser at TD Securities Inc., who was accused of trading in advance of a takeover deal for Masonite International Corp. in 2004.

The court said the OSC hearing panel "made a number of factual errors" in its analysis of the evidence against Mr. Cheng, and said it was not clear that Mr. Cheng should have known the information he received about Masonite came from an inside source.

However, the three-member appeal panel upheld the findings against Mr. Finkelstein, Paul Azeff, Korin Bobrow and Howard Miller, ruling the OSC's findings and sanctions were reasonable.

Justice Ian Nordheimer, who wrote the appeal decision, said "there is no basis for questioning the reasonableness" of the OSC's findings that Mr. Finkelstein tipped Mr. Azeff about three takeover deals between 2004 and 2007.

OSC enforcement director Jeff Kehoe said Tuesday the appeal decision is important for affirming the OSC's approach to insider trading cases.

"This is a very important decision and the first in Canada to uphold the commission's approach where there are multiple offenders in a chain of insider trading and tipping," he said in a statement. "It affirms our decision to prosecute cases that are complex and notoriously hard to detect."

The OSC ruled in March, 2015, that Mr. Finkelstein, a former senior partner at Davies Ward Phillips & Vineberg LLP, passed inside information about three takeover deals to friend Paul Azeff, a former CIBC investment adviser.

The commission ruled Mr. Azeff tipped others, and the information moved down through a chain of people who traded on the tips.

Mr. Finkelstein was ordered to pay $575,000 in penalties and costs and banned for 10 years from trading securities or working as an investment-industry registrant. He was banned for life from serving as a director or officer of a public company.

Mr. Azeff was given a 10-year trading and registration ban and ordered to pay almost $1-million in penalties and costs. Mr. Bobrow, who worked with Mr. Azeff at CIBC, was also given a 10-year ban and ordered to pay over $425,000 in penalties and costs.

Justice Nordheimer said the sanctions were appropriate in the case, noting that while Mr. Finkelstein was not registered to work in the securities industry, he was a lawyer at a major law firm working "in the very area of law and commercial activity to which the [Securities] Act is directed."

"Given Finkelstein's role and given his position, I agree with the [OSC] panel that his conduct must be considered to be at the higher end of the spectrum of severity," Justice Nordheimer said.