A former e-mail administrator at MDS Inc. improperly bought shares of a California company after he discovered MDS was eyeing it for a takeover bid, the Ontario Securities Commission ruled Monday.
Shane Suman acted "contrary to the public interest" when he and his wife earned a profit of almost $1-million (U.S.) after buying shares of U.S. biotech company Molecular Devices Corp. just before MDS announced a takeover offer for the company in 2007, a commission panel said in a decision. Mr. Suman was also found to have tipped his wife about the proposed takeover.
His wife, Monie Rahman, was found to have engaged in conduct contrary to the public interest.
The panel said it will schedule a sanctions hearing to determine a penalty.
The OSC alleged Mr. Suman, an e-mail administrator at MDS subsidiary MDS Sciex, learned of the takeover deal after a member of the deal team at MDS contacted the company's IT department asked for help with a BlackBerry problem, and after another employee asked for help retrieving a lost document relating to the deal.
Mr. Suman and Ms. Rahman denied the allegations and said they purchased shares of Molecular Devices based on their own financial research. They also argued that the OSC could not prove Mr. Suman read any specific document about the deal, and said the OSC's allegations were based on "pure conjecture and speculation."
The OSC hearing panel, led by vice-chairman James Turner, concluded there was significant circumstantial evidence against the couple. Mr. Suman had the opportunity and ability to view documents about the deal, the panel said, and made an unusual investment in a huge volume of Molecular Devices options in the five days prior to the deal's announcement.
Their purchases, which netted a profit of $954,938, cost more than the total value of the couples' other assets, the panel noted. Shares of Molecular Devices, based in Sunnyvale, Calif., rose 44 per cent immediately after the takeover bid was announced.
"We have also found that the [couple's]well-timed, highly uncharacteristic, risky and highly profitable purchases of the Molecular securities constituted a fundamental shift in the nature of their trading that was not satisfactorily explained," the ruling noted.
The commissioners said they felt it was also significant that Mr. Suman initially denied to the OSC he had purchased Molecular shares, and later wiped all the data on his computer after OSC staff contacted him about a trading investigation and expressly warned him not to delete any data or tamper with his office computer.
"Taken together, this is strong circumstantial evidence supporting the inferences we make," the panel said.
The ruling says Mr. Suman and Ms. Rahman were not accused of illegal insider trading in the case because Molecular Devices was not technically a "reporting issuer" in 2007 under the definition provided in the Ontario Securities Act. If the company had been a reporting issuer, the panel decision said the couple's actions would have qualified as improper insider trading.
The panel decision said the couple nevertheless breached the spirit of the insider trading prohibition, so their conduct was still improper under the broader "contrary to the public interest" provisions of the act.
The U.S. Securities and Exchange Commission brought a similar case against the couple in 2007. The U.S. District Court for the Southern District of New York found the couple guilty in 2010 and ordered them to pay $1-million (U.S.) in disgorgement of their "ill-gotten gains" and a further $3-million in civil penalties.