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Mitchell Finkelstein, right, is shown at the Ontario Securities Commission in 2011.Brett Gundlock/The Globe and Mail

A former client of CIBC World Markets Inc. in Montreal said he believes a former CIBC investment adviser told him two companies were "in play" before takeover deals were publicly announced, but said he didn't think it was insider information.

The client testified Monday at an Ontario Securities Commission hearing into allegations of insider trading and tipping involving former CIBC financial adviser Paul Azeff, who is accused of passing along tips to clients that he had received from former Bay Street lawyer Mitchell Finkelstein.

The client – who is identified as Client A or as Leon K, because the OSC panel passed an order that no clients of the brokerage firms involved in the case could be identified by their full names – told the hearing he has only a vague memory of conversations he had with Mr. Azeff about Masonite International Corp. and Dynatec Corp., but recalls they discussed the idea that both companies were "in play."

"Mr. Azeff at the time said he'd heard the company was in play, or that was my interpretation that he said the company was in play," Mr. K told the hearing about his Masonite investment.

He added there was discussion about a possible 20 per cent premium for Masonite's shares, but said he didn't recall if that was specific to the Masonite deal or if that was just a typical sort of premium available when a company is acquired. He added it was possible the idea of a 20 per cent premium came from another contact of his and not Mr. Azeff.

The takeover deal for Masonite was announced in December, 2004, for $40 a share, which was almost a 20 per cent premium to its $34 share price a month earlier.

Mr. Finkelstein, a former high-profile partner in the mergers and acquisitions practice at Davies Ward Phillips & Vineberg LLP, is accused of tipping Mr. Azeff about six takeover deals being worked on by his firm. Mr. Azeff and Mr. Finkelstein were long-time friends and former fraternity brothers.

Mr. Azeff is accused of illegal insider trading based on Mr. Finkelstein's tips, and also passing along the information to a network of clients, friends and family members, including Mr. K.

Mr. Azeff's business partner, Korin Bobrow, is also accused of insider trading and tipping.

The OSC case also names two former investment advisers at TD Waterhouse Canada Inc. – Howard Miller and Man Kin (Francis) Cheng – who are accused of trading and passing along tips to clients after allegedly learning about some of the deals from Mr. K.

The men all deny the allegations, which have not been proven.

The deals at the centre of the case include some of the major takeover bids in Canada between 2004 and 2007, including the $3-billion offer for Masonite International Corp. in 2004, the $10.3-billion bid for Placer Dome Inc. in 2005, as well as bids for Legacy Hotels REIT and Dynatec Corp. in 2007.

Mr. K, a chartered accountant from Montreal and a frequent trader who owned hundreds of shares, said he invested in Masonite and Dynatec as well as other shares named in the case after doing his own research and determining they were attractive deals for a wide variety of reasons, and not just because of conversations with Mr. Azeff.

In the month prior to the announcement of the Masonite deal on Dec. 22, 2004, Mr. K bought about $200,000 worth of Masonite shares, which he said was the largest position he had ever taken in a single stock. He said he earned a profit of about $40,000 on the investment.

He also bought Dynatec shares over two days in April, 2007, before Sherritt announced a takeover bid for Dynatec. He earned a profit of $18,000 to $20,000 on the stock. Mr. K told OSC lawyer Tamara Center he talked to Mr. Azeff about that investment before he bought the shares.

"It's quite possible we had a conversation about Dynatec being in play," he testified.

He said he never asked Mr. Azeff where he got his information. He said the term "in play" was used often and didn't necessarily mean a takeover bid for the full company was the only option.

Under cross-examination by Mr. Azeff's lawyer, Tyler Hodgson, Mr. K testified he did not think Mr. Azeff was passing along material insider information in violation of securities laws, nor that he had in turn passed along material information to Mr. Miller at TD in violation of securities laws.

Mr. K told lawyer Simon Bieber, who is acting for Mr. Miller, that he did not tell Mr. Miller that his information came from Mr. Azeff.

He said Mr. Azeff's information was not always accurate, and he had bought a number of stocks on his advice that had lost money. He agreed that "some rumours were absolutely wrong" that Mr. Azeff passed along.

"There was nothing to suggest that the rumour was coming from an insider," Mr. Bieber asked about the Masonite deal. "Nothing at all," Mr. K replied.

Mr. K also testified he sold some of his Dynatec shares the day before the deal was announced because he had concerns about the investment. Mr. Bieber suggested Mr. K wouldn't have sold if Mr. Azeff had given him concrete information about a deal. "That's fair," Mr. K replied.

The OSC alleges Mr. Azeff, Mr. Bobrow and their circle of friends and clients earned more than $3.4-million in profits on trading in shares based on tips from Mr. Finkelstein.

OSC commissioner Alan Lenczner, who is heading the hearing panel, also questioned Mr. K during Monday's hearing, reading him an e-mail previously entered in evidence in which Mr. Miller told a client he had a tip about a takeover deal for Masonite at $40 a share. He asked Mr. K if he gave that information to Mr. Miller.

"I can't recall that conversation," Mr. K testified.

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