A former national sales manager with Aston Hill Asset Management Inc. was ordered to pay $11,000 and banned from working at a senior level in the fund industry for the next two years in an insider-trading settlement approved Tuesday by the Ontario Securities Commission (OSC).
As part of the settlement agreement, John David Rothstein admitted that he received a tip from his boss Ben Cheng about online gambling company Amaya Inc. 's $4.9-billion takeover of the owner of PokerStars shortly before the deal was announced in mid-2014. Mr. Rothstein also admitted that he broke securities law by trading on the information and tipping another client of the firm about the deal.
Mr. Rothstein has agreed to pay an administrative penalty of $5,500 and make a further disgorgement payment of $5,500 to reflect the profits he pocketed by trading on privileged information. As a condition for settling, the OSC prohibits Mr. Rothstein from trading any shares or derivatives for the next two years. Nor is he allowed to serve as a director or officer with an issuer, registrant or fund company during that period.
In its submissions, the OSC said that because Mr. Rothstein co-operated with staff in its investigation, his sanctions were significantly less than had the matter proceeded to a contested hearing. The regulator also said that it was unusual to receive direct evidence from an insider-trading participant, as cases are often built around circumstantial evidence by necessity.
Mr. Rothstein, who was present at the hearing on Tuesday in Toronto, declined comment for this story.
In its statement of allegations, released last week, the OSC alleged that Aston Hill Financial Inc. president Mr. Cheng met with Mr. Rothstein on June 11, 2014, and informed him that the Amaya takeover deal would be announced the next day. Mr. Cheng had received word about the transaction a few months earlier because Aston Hill was providing part of the financing. As part of that process, Mr. Cheng signed a non-disclosure agreement that prohibited him from trading in Amaya shares or passing on privileged information to others. The OSC alleges that Mr. Rothstein was encouraged by Mr. Cheng to tip clients of the firm who had suffered losses on various Aston Hill investments about the deal.
"He should have exercised his own judgment and declined to pass along the tip," the OSC said in the settlement agreement. "But he felt pressure to please his boss and an important firm client."
Shortly after speaking to Mr. Cheng., Mr. Rothstein informed then-CIBC broker Frank Soave that the Amaya deal was imminent. The OSC alleges that Mr. Soave also traded on the insider information and made a profit of around $38,000.
After Mr. Soave sold his shares, he texted "Thank you" to Mr. Rothstein, who replied "Unbelievable," according to the OSC.
As part of the settlement, Mr. Rothstein admitted that he personally bought 700 shares in Amaya after the tip from Mr. Cheng and quickly sold the stock for a profit of approximately $5,500.
In her reprimand of Mr. Rothstein, OSC commissioner Janet Leiper called the outcome of the proceedings a "significant misstep, but not fatal."
Mr. Rothstein has agreed to continue to co-operate in any further OSC investigation that may stem from this insider trading case, and will testify if need be.
Mr. Cheng and Mr. Soave are disputing the OSC's allegations of tipping, trading and making misleading statements. Another respondent, Eric Tremblay, former chief executive officer of Aston Hill, disputes allegations of making misleading statements. Regulatory hearings in these matters are due to get under way next month.