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Former Amaya CEO failed to meet compliance duties by sending e-mail: watchdog

The Amaya Inc. headquarters are pictured on June 13, 2014, in a suburb of Montreal.

Ryan Remiorz/The Canadian Press

Amaya Inc. former chief executive officer David Baazov played loose with the company's corporate disclosure policies ahead of its acquisition of Cryptologic Ltd. in 2011, Quebec's securities watchdog told a hearing considering insider trading allegations Wednesday.

Despite the fact his brother Josh was not a member of Amaya management but merely a consultant to the Internet gambling company at the time, Mr. Baazov forwarded him an e-mail from Amaya adviser Canaccord referring to Amaya's impending takeover attempt of Cryptologic, the Autorité des marchés financiers alleges. In the message, he asks his brother for "support," which the AMF says was a request for help building momentum for Amaya stock to prepare a bid.

In sending the e-mail, Mr. Baazov failed in his own compliance duties and broke securities laws by never disclosing his actions to regulators, the AMF says.

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It was the beginning of what the the regulator alleges were the illegal activities of a tight-knit group of Montrealers who profited handsomely by trading on privileged information about several takeover deals involving Amaya and other companies over a six-year period.

Kickbacks equalling 10 per cent of net gains were paid by those lower in the pyramid to those higher up, the watchdog says. It alleges that Mr. Baazov was the main source of the privileged information, which filtered out to several others in turn.

"We're dealing here with a veritable chain reaction," AMF lawyer Philippe Levasseur told a hearing of the Tribunal administratif des marchés financiers, an independent tribunal weighing the merits of freeze and cease-trade orders against 12 people facing allegations of insider trading in the case. "It was a well-established pattern over several years to the detriment of the public markets."

Mr. Baazov has been charged with insider trading and attempting to influence the market price of Amaya stock in a separate, criminal case in relation to the company's $4.9-billion (U.S.) takeover of PokerStars owner Oldford Group Ltd. in 2014. He stepped down as Amaya CEO last month but remains a significant shareholder in the gambling company.

Mr. Baazov maintains he did nothing wrong. The 12 people, including Josh Baazov, have either struck deals with the AMF to freeze some of their bank and trading accounts while the AMF's investigation continues or are not contesting the limitations imposed on their financial assets. None of the 12 individuals has been charged.

The tribunal gave permission to David Baazov's lawyer, Sophie Melchers of Norton Rose Fulbright, to question the AMF's main investigator in the case. It marked the first time counsel for Mr. Baazov has been able to test any of the evidence the AMF has against him.

Ms. Melchers exposed what she called omissions and flaws in some of the evidence the AMF presented to the tribunal as part of the regulator's cease-trade application. And she presented evidence suggesting there were strong rumours in the public domain about impending deals that might have spurred the individuals to buy stock, arguing they didn't necessarily act on privileged information.

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Mr. Levasseur rejected these arguments, saying it's no accident that the circle of acquaintances got lucky on their trades. He said in nearly each takeover, the company stock the individuals bought jumped significantly in the trading sessions after the deals were announced. "If the stock moves big, it shows the market did not know about the deal" while the individuals did, Mr. Levasseur said.

The AMF has revealed that it has only circumstantial evidence on which to base its allegations against the 12 individuals and David Baazov. That means that while it has phone records showing some of the individuals called each other at certain key times for example, it doesn't know what was said on those phone calls. Similarly, it has only partial text and e-mail messages in some cases.

That doesn't mean the case is weak, Mr. Levasseur insisted. He said insider trading cases pursued so far in Canada almost always involve circumstantial evidence, adding that the AMF does not have the power to tap phones. "Direct proof just doesn't happen," he said.

"We welcome this public hearing and the tribunal's review of the allegations made by the AMF," said Ian Robertson, spokesman for David Baazov.

With respect to the allegations surrounding the disclosure on Cryptologic and other deals, he said: "We are confident in the confidentiality agreements and expect that all abided by them."

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