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Marc and Vic Bertrand of Mega Brands Inc. at the company headquarters in Montreal (John Morstad/John Morstad/For The Globe and Mail)
Marc and Vic Bertrand of Mega Brands Inc. at the company headquarters in Montreal (John Morstad/John Morstad/For The Globe and Mail)

Mega Brand insiders accused of illegal trading Add to ...

Four current and former executives of toy maker Mega Brands Inc. have been accused of illegal insider trading after allegedly selling securities in 2005 before the company reported a toddler had died from swallowing magnets from one of its toys.

Quebec's securities regulator, the Autorité des marchés financiers (AMF), revealed the allegations Wednesday and said it is seeking payments totalling $6.5-million from chief executive officer Marc Bertrand; chief innovation officer Vic Bertrand; former chief financial officer Alain Tanguay; and Brahm Segal, former vice-president of business development.

Mega Brands was rocked in 2005 when a Seattle-area child died after swallowing loose magnets from a Magnetix set manufactured by Rose Art Industries Inc., a subsidiary of Mega Brands. By the time the company recalled all outstanding Magnetix sets in 2007, 27 other children had been seriously injured by swallowing magnets.

The AMF did not reveal details Wednesday about the alleged trading activity in 2005 or the gains earned by the executives. "The AMF maintains that the transactions were illegal insider trades because the respondents held information that was not available at the time to the public," the regulator said in a release.

Mega Brands said its executives deny the AMF accusations.

"Marc Bertrand and Vic Bertrand deny any wrongdoing and will defend vigorously against these allegations," the company said in a statement.

The two former executives named in the case could not be reached for comment.

Accusations of insider trading were first levelled against Mega Brands insiders in 2008 during a legal battle with Lawrence and Jeffrey Rosen, who sold their company, Rose Art Industries, to Mega Brands in 2005.

Mega Brands withheld performance-related payments to the Rosens after the magnet scandal broke in 2005, and the Rosen family sued the company to try to recover the money. Mega Brands countersued, alleging that Rose Art had not disclosed material information prior to the sale of the company.

As the legal battle intensified, the Rosens added new claims to their case, alleging that insiders of Mega Brands had illegally traded securities before news of the magnet injuries came to light.

Mega Brands issued a statement this week saying it formed a special committee of independent directors in 2008 when the allegations by the Rosens surfaced. The committee investigated the insider trading claims and concluded no action should be taken by the company, Mega Brands said. "Its recommendation was considered, voted on and unanimously approved at a meeting of the board of directors comprised solely of independent directors," the company said.

The legal battle with the Rosens was settled in 2009 with an agreement that the Rosens would pay Mega Brands $17.2-million in cash and abandon other claims worth $54.8-million.

Mega Brands noted Wednesday that the company itself has not been named in the AMF allegations. "The AMF is solely seeking to obtain reimbursement of option proceeds and fines from current and former executives," the company release said.

The AMF said it has asked the Bureau de décision et de révision to order payments of $2.89-million from each of the Bertrand brothers, and is seeking payments of $468,500 from Mr. Tanguay and $234,375 from Mr. Segal.

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