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The Ontario Securities Commission has accused fund manager Ben Cheng and three other Bay Street participants of securities-law violations in connection with a leaked takeover offer in 2014 by online gambling company Amaya Inc.

© Christinne Muschi / Reuters

The Ontario Securities Commission has accused fund manager Ben Cheng and three other Bay Street players of securities-law violations in connection with a leaked takeover offer in 2014 by online gambling company Amaya Inc.

The OSC alleges that Mr. Cheng, who was president of Aston Hill Financial Inc. at the time, illegaly tipped an Aston Hill sales manager, John David Rothstein, about Amaya's $4.9-billion (U.S.) takeover of the parent company of online gambling operation PokerStars and encouraged him to share the information with others. The OSC action also named Eric Tremblay, then chief executive officer of Aston Hill, and Frank Soave, who was an investment advisor at CIBC.

The allegations stem from a multi-year investigation into the acquisition of PokerStars parent Rational Group by Montreal-based Amaya.

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Last year, the Autorité des marchés financiers (AMF), Quebec's securities regulator, brought quasi-criminal charges against Amaya's founder and former CEO David Baazov, Yoel Altman, a former advisor to the company, and Benjamin Ahdoot, a childhood friend of Mr. Baazov. None of the charges in connection with the Rational Group deal has been proven in court.

The OSC alleges that Mr. Cheng learned of the proposed deal about six weeks in advance and then tipped off Mr. Rothstein in a meeting that was held on June 11, 2014, the day before it was announced.

"[Mr.] Rothstein understood that the acquisition would cause the price for Amaya shares to increase significantly," the OSC says in its statement of allegations.

"Also at the meeting, Cheng instructed, encouraged and/or suggested to Rothstein to inform others, who had lost money on certain other investments promoted by [Aston Hill]."

The OSC also alleges that hours after the meeting, Mr. Rothstein acquired 700 shares in an account held in trust for his children, then sold them two days later make a quick profit of $5,507.

When the deal was announced, shares in Amaya surged from roughly $14 to $20.

The OSC also alleges that on the same day Mr. Rothstein became aware of the acquisition, he informed Frank Soave, an investment advisor at CIBC, who also then bought shares while in possession of privileged information.

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"On June 11, 2014, Mr. Rothstein texted to Soave 'AYA' [Amaya's ticker symbol]," the OSC document says. Soave texted back: "Sorry never owned it should I". A few minutes later Mr. Rothstein texted back, "Yes". That exchange happened at about 4 p.m. on June 11.

On the morning of June 12, the OSC alleges, Mr. Rothstein called Mr. Soave and gave him some of the details of the takeover, including the fact that an announcement was imminent. At 10:35 a.m., Mr. Soave bought 5,000 shares in Amaya. He sold them the next day for a profit of $38,166, the OSC case states, and texted "Thank you" to Mr. Rothstein.

Mr. Rothstein allegedly texted back: "Unbelievable"

The OSC alleges that in the course of its investigation, staff examined Mr. Cheng, Mr. Soave, Mr. Rothstein and Mr. Tremblay under oath. In the course of those examinations, all except Mr. Rothstein made "misleading statements ... on material matters and/or omitted facts required to make the statements not misleading," according to the statement of allegations.

The OSC says Mr. Cheng met a representative of Canaccord Genuity Group Inc., Amaya's investment banker, in April 2014. Mr. Cheng signed a nondisclosure agreement, which meant he could not trade in the securities of Amaya before the deal was announced, nor inform others of it. Mr. Cheng signed the agreement in connection with Amaya's planned financing of the takeover.

Shara Roy, a partner at Lenczner Slaght Royce Smith Griffin LLP who represents Mr. Cheng, said she had no comment on the OSC's allegations against her client. Lawyers representing Mr. Tremblay and Mr. Soave did not immediately respond to a request for comment. Counsel for Mr. Rothstein could not be reached.

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An OSC hearing is scheduled next week to approve a settlement with Mr. Rothstein. The others named in the action are contesting the allegations.

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