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The acquisition of Chariot Resources by China Sci-Tech Holdings Ltd. earlier this year is under investigation by the Ontario Securities Commission.

The takeover of Chariot, a junior mining company that held an attractive copper deposit in Peru, led to wild trading in the shares in advance of the public announcement of the acquisition on March 1.

While acquisition targets typically surge on the day that news of a deal comes out, in Chariot's case, most of the juicy gains happened before the announcement. The shares rose 28 per cent in the week before the deal became public, but only 5 per cent in the session after executives formally revealed they'd reached a deal.

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"As far as I know that investigation is still ongoing," says Ulli Rath, Chariot's president at the time of the acquisition, but he isn't aware of its status. Mr. Rath said officials at the companies worried the share runup indicated that information had leaked out and did their own investigation, but "nothing ever came up."

The OSC declined to comment, saying it has a policy of not responding to questions about the status of any investigations.

Suspicious trading in Chariot in advance of important news about the company is part of a broader trend observed on the Canadian market.

An investigation by The Globe and Mail reported Saturday that in 14 takeovers deals in the mining sector during the past year, shares rallied, often sharply, in the days just before the transactions became public. The Globe's investigation focused on companies in the red-hot mining sector, where most takeovers in Canada are occurring because of the craze over commodities.

The biggest preannouncement gain was 38 per cent, for a deal involving Brazauro Resources. Chariot had the second-largest increase in the group.

The investigation also included an analysis that showed the increases couldn't be explained by general market trends at the time of the deals. The stocks had gains averaging about 9 per cent, relative to changes in both the TSX as a whole and the gold mining sector, in the days before the acquisitions.

Separately, the British Columbia Securities Commission said last week that it is reviewing a sharp, 40-per-cent drop in the shares of Taseko Mines Ltd. before Ottawa announced it would block the company's proposal to build a mine because of environmental concerns.

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Heavy trading activity and a surging price in Chariot's shares before the takeover did attract the notice of watchdogs at the Investment Industry Regulatory Organization of Canada (IIROC), the agency that conducts surveillance of unusual activity on behalf of the Toronto Stock Exchange.

At the request of regulators, Chariot issued a press release on Feb. 22, a week before the deal was revealed to investors, saying that it was in exclusive negotiations with an unnamed third party about a possible transaction, the nature of which wasn't disclosed. The shares then continued to rally.

Mr. Rath said the companies have been co-operating with requests from regulators for detailed information on dates and timing of meetings, among other items. "There was a first round and then we responded and then they came back and I guess it had been kicked up into a more formal investigation," he said.

The takeover valued Chariot at about $240-million.

Any takeover of any size involves dozens of lawyers, accountants, consultants, and investment bankers, besides boards of directors and executives, making investigations difficult and complicated. In Chariot's case, these groups were spread across two continents, with some in Hong Kong and others in Canada.

Mr. Rath said takeovers initially involve a "pretty small group" aware of the possible transaction "but at some point there is an ever widening circle of individuals that seems to be involved, one way or the other."

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