OSC vows to keep fighting insider trading despite Baffinland loss

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The man in charge of weeding out illegal insider trading in Ontario's capital markets says the high-profile defeat of a case against two prominent mining industry figures won't deter the province's securities regulator from cracking down on the practice.

"They are hard cases to prosecute. Every jurisdiction around the world has difficulty prosecuting insider trading," Tom Atkinson, the Ontario Securities Commission's director of enforcement, said in an interview with The Globe and Mail. "But we are obligated to do so."

Mr. Atkinson said he stood by the decision to launch proceedings for alleged illegal insider trading against Jowdat Waheed, a former chief executive of Sherritt International Corp., and his friend Bruce Walter, a veteran deal maker who played a role in the formation of Barrick Gold Corp. in the 1980s.

A panel of three commissioners released a decision Wednesday completely dismissing allegations the two men wrongly used insider information when they teamed up on a takeover bid of junior mining company Baffinland Iron Mines Corp. in 2010.

Mr. Atkinson said the OSC's enforcement branch would study the ruling and that it may guide future prosecutions, which he said were often challenging because of their complexity and because of the need to rely on circumstantial evidence.

But he said the regulator would continue its push for new powers, including the use of wiretaps, to fight illegal insider trading, noting the OSC has brought several illegal insider trading cases forward in recent years using new computer systems and other investigative techniques. "I know we've got a strong commitment to prosecute insider trading cases," Mr. Atkinson said.

This case revolved around Baffinland, which was sitting on a massive high-quality iron ore deposit on Baffin Island in the Arctic. The tiny company needed a large partner to develop the site, and had been in talks with Luxembourg-based global giant ArcelorMittal SA on a joint venture.

Mr. Waheed had been hired as a consultant to Baffinland, but finished his work in April of 2010 after clashes with the company's brass. Just before Baffinland was to announce its joint venture with ArcelorMittal in September, he and Mr. Walter launched a hostile bid for Baffinland. ArcelorMittal countered with its own offer, and the steel giant and the company set up by Mr. Walter and Mr. Waheed, Nunavut Iron Ore, eventually combined in a joint bid and took over Baffinland.

In a statement of allegations released in early 2012, the OSC alleged that Mr. Waheed, as a former consultant to Baffinland, knew inside details about the company, including the talks with ArcelorMittal, and shared them with Mr. Walter.

But in its 123-page decision, the OSC concluded that Mr. Waheed did not have any material inside information, citing testimony from a key witness who said the state of any joint-venture talks were not discussed at a key July meeting with Mr. Waheed.

In other cases, the OSC has used what is known as its "public interest" power, a vaguely worded provision, that allows it to sanction individuals or companies even when they have been found not to have broken the letter of the law. But the commission panel ruled that it would not use this power in this case.

Some legal experts say the decision could influence future OSC panels to rein in their use of the commission's broadly defined "public interest" power. However, unlike in the courts, OSC rulings are not precedents that strictly bind future decisions.

"Its tone is indicative of a more restrained approach to the exercising of the public interest power than some other recent decisions," said long-time Toronto securities lawyer Philip Anisman.

Paul Steep, a lawyer with McCarthy Tétrault LLP who acted for Mr. Waheed, said the public interest power had in the past been used "as a catch-all, for [OSC] staff when they couldn't get convictions for breaking the securities act."

He said this case was different than other insider-trading allegations pursued by the commission, since it did not involve any allegations of suspicious cash payments or moves to conceal the trading that are typical in most cases: "I think they made a misjudgment on this case."

Meanwhile, other litigation over the contentious Baffinland takeover continues, as dissenting shareholders who allege the companies involved failed to make proper disclosures during the takeover process are behind a proposed class action lawsuit that is still before the courts. They allege they were underpaid dramatically for the massive iron ore deposit. The allegations have not been proved.

Dissenting shareholder Dale Ohirko said he didn't believe the OSC ruling was the end of their case: "We soldier on."