David Baazov and two associates conspired to try to pump up the price of Amaya Inc. stock in the leadup to its $4.9-billion (U.S.) takeover of PokerStars, Quebec's securities regulator alleges in a new court filing ahead of their insider trading trial later this month.
The allegations are contained in the first version of the Autorité des marchés financiers (AMF) trial book, dated May 15, 2017, and provide a glimpse into the prosecution's plans in what is believed to be Canada's biggest insider-trading investigation. The trial book is a blueprint, of sorts, containing arguments, names of witnesses and a brief description of evidence that AMF lawyers intend to try to use to make a case against the three men.
The AMF says Amaya's former chief executive, together with Toronto financier Yoel Altman and Benjamin Ahdoot, a childhood friend of Mr. Baazov who was vice-president of government projects at Amaya at the time, tried to reverse a slide in shares of the internet gambling company by buying up stock in April and May, 2014. They did so, the regulator alleges, with insider knowledge that Amaya was making headway in negotiations with Oldford Group on a takeover of its popular internet card-room business PokerStars.
"We just need to get ahead of these shorters and prop desk guys like we have done before," Mr. Altman writes in an e-mail to Mr. Baazov obtained by the AMF and cited in the filing.
None of the allegations have been proven in court.
The Ontario Securities Commission is pursuing its own probe into the actions of a group of Bay Street investment executives ahead of Amaya's takeover of PokerStars, including a former national sales manager with Aston Hill Asset Management Inc. who admitted in April that he broke securities law by trading on a tip about the impending deal and also tipped off someone else.
Amaya was financially stretched when it first approached PokerStars about a possible buyout in late 2013. The company was coming off three consecutive years of losses and cash was tight.
After rising to $8.99 a share in early 2014, Amaya's stock shed 35 per cent to $5.81 by April 16 in the wake of a disappointing earnings report. Around this time, Mr. Baazov was under significant pressure from Amaya investors to do something about the selloff, and communication between him and Mr. Altman showed they were highly concerned about the falling stock price, according to the AMF allegations.
Shortly thereafter, the stock started gaining ground, nearly tripling in value in heavy trading to $14.08 before the PokerStars deal was finally announced on June 12. During that period, trading volumes in Amaya shares soared to an average 750,000 shares daily, more than double the volume levels over the previous four months.
The AMF had previously alleged that tips about the company's confidential takeover talks helped stoke the buying frenzy in Amaya's stock. It's clear now that it believes things went further than that, with Mr. Baazov, Mr. Altman and Mr. Adhoot allegedly planning to buy Amaya shares to prop up their price.
The regulator alleges that after communications between the three men, $1.4-million was transferred from Amaya's bank account to that of Diocles, an investment company controlled by Mr. Altman. It says Mr. Altman later billed Amaya for consulting services to account for the $1.4-million. Mr. Adhoot also arranged for $200,000 of his own money to go to Diocles, the regular alleges, which was also later reimbursed.
In all, Diocles bought at least $2.25-million worth of Amaya shares, the AMF says.
Mr. Altman accompanied Mr. Baazov to an initial meeting with Oldford Group officials on the Isle of Man in December, 2013, according to the trial-book allegations. Just days later, while he was kept abreast of the acquisition price being discussed and other developments, he made illegal insider trades in Amaya shares through the brokerage accounts of Diocles and Sababa, another company he controlled, the AMF alleges.
Even after Mr. Altman was eventually distanced from the PokerStars negotiations around the end of January, 2014, he continued to trade in Amaya shares through his companies, the AMF alleges. Further, it alleges that Mr. Baazov continued to keep him informed of progress with the takeover, including forwarding him information about financial backing won for the deal.
Quebec's securities regulator laid rare insider-trading charges in March, 2016, against Mr. Baazov and has been pursuing its investigation since then. He is accused of aiding with trades while in possession of privileged information, influencing or attempting to influence the market price of Amaya securities and communicating privileged information.
Mr. Ahdoot and Mr. Altman, an adviser to Amaya, have been charged with insider trading and attempting to influence the market price of Amaya securities in the same case. Three companies – Diocles Capital Inc., Sababa Consulting Inc. and 2374879 Ontario Inc. – are charged with similar offences.
Sylvain Théberge, a spokesman for the AMF, declined to comment. Adam Sharon, a spokesman for Mr. Baazov, also declined to comment.
Eric Hollreiser, a spokesman for The Stars Group Inc., said it would be "inappropriate" for the company to comment because it is not involved in the litigation. Stars Group is the new name Amaya adopted in a rebranding that also saw it move its headquarters to Toronto this year.
Mr. Baazov and the other defendants have filed for dismissal of the case on the grounds that the regulator has fumbled the prosecution so thoroughly that they can't be tried in a reasonable amount of time. All maintain they are innocent.
In their motion to stay the proceedings, filed Oct.17, the defendants argue that a mismanagement of the case by the AMF has resulted in a "piecemeal, disorganized and tardy disclosure of the evidence," including 16 million items of data released to the defence in mid-September, three months before the trial's scheduled start date of Dec.11.