The Ontario Securities Commission has ruled that former Bay Street lawyer Mitchell Finkelstein and four others must pay more than $2.7-million in fines and penalties, and banned them from trading for 10 years, for insider trading infractions they were found guilty of earlier this year.
The OSC penalties follow a ruling in March that Mr. Finkelstein, a former senior partner with law firm Davies Ward Phillips & Vineberg LLP, passed inside information about deals to long-time friend Paul Azeff, a former CIBC investment adviser, who was found to have tipped others.
That ruling was seen as an important victory for the commission in a high-profile case involving insider trading allegations, which have proven difficult to successfully prosecute in other cases.
In the sanction decision released Tuesday, Mr. Finkelstein was given a 10-year trading ban, with exceptions for his registered accounts. He will also be permanently banned from being a director or officer of a public company, and has a 10-year ban from being an investor industry registrant. His financial penalties include a $450,000 administrative penalty and $125,000 in OSC costs.
In the penalty ruling, the commissioners acknowledged that Mr. Finkelstein had already suffered from losing his career as a rising mergers and acquisition lawyer. However, they wrote, it was still necessary to "remove any risk that he will be in a position to affect capital markets adversely" and they needed to get the message out to others that there would be consequences for misconduct.
Commissioners Alan Lenczner and AnneMarie Ryan said Mr. Finkelstein's transgressions "must be considered to be at the upper end of severity," because he was in a position of trust at his firm and was aware that the information he was dealing with was confidential.
Mr. Finkelstein's lawyer Gordon Capern said Tuesday that his client will be appealing both the initial ruling and the sanctions. In an e-mail he noted that the panel rejected the OSC staff's "draconian" request for a $1.5-million penalty against Mr. Finkelstein, but he said the sanctions ordered still "appear to be out of step with recent decisions of the commission."
Mr. Azeff was given a 10-year trading and registration ban, a lifetime ban on being a director or officer, a penalty of $750,000, and he had to disgorge $49,996 of profits and pay $175,000 in costs.
Korin Bobrow, who is also former CIBC broker, received a lifetime ban on being a director or officer, and a 10-year ban on trading and registration. He was hit with a $300,000 penalty, profit disgorgement of $10,217 and costs of $125,000.
The two other players in the case, Howard Miller and Man Kin (Francis) Cheng, received 10-year bans on trading and registration, and a 10-year ban from being an officer or director. Mr. Miller has to pay a $450,000 penalty, $24,485 in disgorgement and $50,000 in costs. Mr. Cheng's penalty is $200,000 plus $25,000 in costs.
The OSC's staff had asked for total fines and other payments of $6.8-million from Mr. Finkelstein and the others involved in the case.
In its initial decision in the case in March, the OSC concluded that Mr. Finkelstein passed insider information on corporate deals to Mr. Azeff, who traded on it himself, passed it on to clients and handed it to Mr. Bobrow, who also either traded on it himself or passed it to clients.
Lawrence Ritchie, a partner with Toronto-based Osler Hoskin & Harcourt LLP who was previously an OSC vice-chairman, said the financial penalties are not as important as strong "preventative and protective sanctions which ensure that investors and market integrity are adequately protected from those who are willing to inappropriately take advantage of access to confidential information."
If misbehaviour is detected and prosecuted promptly, that can have a significant impact on the personal and professional reputation of the transgressor, Mr. Ritchie said, and can be more devastating "than an arbitrarily high financial penalty that may or may not be collectible."