It was supposed to be the Holy Grail case for Quebec’s securities watchdog, a chance to prove it could prosecute a high-profile gambling mogul for alleged insider trading. Instead, it has left observers asking how things could go so wrong.
When Justice Salvatore Mascia of the Quebec Court this week threw out charges against former Amaya Inc. chief executive David Baazov and two co-accused because the Autorité des marchés financiers (AMF) mishandled the file, it underlined Canada’s poor record for policing insider trading compared with the United States.
But it also showed that there are procedural protections for accused. That the AMF could not bring the case forward without violating them raises new questions about the regulator and whether it has the skill and stamina to see this complex saga through.
“It may in fact be important protection of our justice system,” Norm Keith, a Toronto-based lawyer with the law firm Fasken who has written books on insider trading, said of the decision in favour of the rights of the accused. “But it’s very disappointing that the government regulators can’t get their act together. ... It should cause the man on the street to demand more of their government regulators in terms of their integrity, their diligence and maybe their resources.”
Mr. Baazov embraced his lawyer, Sophie Melchers of Norton Rose Fulbright, for several seconds after Justice Mascia finished reading his decision on Wednesday afternoon. But although it was a victory, he did not win by proving his innocence.
The AMF lost because of what the judge characterized as a failure to meet its duties and obligations to offer timely disclosure of evidence and properly protect solicitor-client privilege. That in turn jeopardized the integrity of the legal process and required a stay of proceedings, the judge ruled.
“Trials are not well-oiled machines,” Judge Mascia told the court. “Mistakes happen. Nevertheless, there are limits. Let’s not forget that it’s the accused that live with the inconveniences, the stress and the vicissitudes that come with charges against them. Without expecting a perfect trial, they have the right to a trial that takes place without major encroachment.”
Quebec’s securities watchdog charged Mr. Baazov, his childhood friend Benjamin Ahdoot, and Yoel Altman, a consultant who advised on Amaya deals, with insider trading and attempting to influence the market price of Amaya stock in March, 2016. As the AMF plowed resources into multiple investigations of Mr. Baazov’s activities, the case became one of Canada’s biggest ever securities files.
The Montreal-based entrepreneur and his co-accused maintain they are innocent.
The regulator had trouble managing the case almost from the start, the judge noted. For example, last November, after sharing 16 million documents with the defence, the AMF said most were released inadvertently and should not have been disclosed. Two months later, the regulator said another set of documents it shared with the defence had not been reviewed for privilege.
The judge pushed on with the trial anyway and it started in late April. On May 16, the AMF asked the court to order the defence to immediately put in place measures to “quarantine” some 300,000 documents it shared that were potentially privileged.
Defence lawyers called the request nonsense, saying it was like asking them to forget what they had seen.
Defence lawyers filed for a stay of proceedings and Justice Mascia agreed, calling out the AMF in his decision for its “laxness” and “lack of rigour.”
The way the AMF appears to have treated privileged documents is “troubling,” the judge added, as is the way it piled volumes of evidence on the defence ”à la dump truck.” Delaying the trial further was an option the judge said he rejected. He said it would not be fair to ask defence counsel to try to isolate the potentially privileged documents while preparing to question witnesses.
“No explanation was given by the AMF as to how mistakes like these could have happened,” the judge said. “Although society has an interest in criminal proceedings being judged to their fullest, can we always ask the defendants to suffer the inconveniences of repeated errors by the prosecution?”
Sylvain Théberge, spokesman for the AMF, rejected suggestions the outcome undermined the AMF’s credibility, noting the regulator has won several other cases.
“Our enforcement assessment is very good,” Mr. Théberge said.
At the heart of this case is why so many investors bet on Amaya, a minnow-sized Montreal online-gambling company, months before news broke about its US$4.9-billion takeover of betting giant PokerStars. Trading in Amaya stock was frenzied in the weeks before the deal was announced in June, 2014, amid industry rumours of a tie-up between the companies.
While that question might never be answered, at least two parallel investigations are still under way.