Insider trading is exceedingly tough to prosecute.
Most of it still goes unpunished, undermining the confidence of investors and making financial markets inherently riskier for outsiders.
The best regulators can do is catch a few high-profile perpetrators and hope the publicity scares the rest of us straight.
In Canada, the deck may be even more stacked against authorities because of the splintered regulatory regime – 13 separate provincial and territorial regulators, and no national watchdog.
So keep a close eye on how Quebec's securities regulator – the Autorité des marchés financiers (AMF) – handles the curious insider-trading probe involving Amaya Inc.
The case is shaping up as one of the most important investigations ever launched in Canada, and a test of the AMF's ability to enforce securities laws.
Maybe you've never heard of Amaya. The money-losing Montreal-based online gaming company burst to prominence last summer with a blockbuster $4.9-billion takeover of the PokerStars gambling site, whose ads are ubiquitous to TV sports fans.
The sweeping nature of the investigation, triggered by a sharp run-up in Amaya shares around the time of the June, 2014, takeover, is only now becoming clear. In the days and weeks before the deal, Amaya's stock price doubled to more than $14 a share in heavy trading. The stock would eventually catapult to near $40.
The Globe and Mail's Jacquie McNish and Nicolas Van Praet reported Thursday that the AMF seized documents and records of communications in December from Amaya's top two executives – chief executive and co-founder David Baazov and chief financial officer Daniel Sebag.
The two men are part of a much wider circle of individuals targeted, including company associates, advisers, fund managers, brokers and investors. In December, the regulator executed search warrants at the offices of Amaya, its lead financial adviser Canacord Genuity Corp. and a suburban Montreal branch of Manulife Securities Inc.
This goes way beyond Canada, stretching the AMF's limited resources. It involves U.S. and British regulators, as well as the Ontario Securities Commission, and the Investment Industry Regulatory Organization of Canada.
No charges have been laid in the case. And Amaya said this week that an internal review by Ben Soave, a retired RCMP chief superintendent and adviser to the company's board of directors, had found "no evidence" that Mr. Baazov and Mr. Sebag violated Canadian securities laws, including tipping and insider trading.
It is not unusual for regulators to co-operate in major investigations. But Canada is the only G20 country that doesn't have a national securities regulator to take charge of investigations that often cross international boundaries.
Regulators from five provinces and the federal government have pledged to form a more limited Cooperative Capital Markets Regulatory System to monitor things, such as systemic risk. But it is not yet operational, and two key provinces – Quebec and Alberta – have steadfastly refused to join, leaving significant gaps in the creation of a national regime.
Quebec's securities regulator may well uncover dozens of violations and go on to successfully prosecute them.
But the track record of Canadian regulators is less than impressive.
Last month, the OSC won a rare victory in its fight against insider trading, when a panel ruled that a prominent former Bay Street lawyer, Mitchell Finkelstein, had tipped off a broker friend at CIBC, Paul Azeff, about impending corporate deals.
But only one person has ever gone to jail for insider trading in Canada – in part because of the reluctance of regulators to pursue criminal charges, where the burden of proof is higher than in civil cases. And the number of investigations launched has been in steady decline since at least 2010. There were just seven in 2014, fewer than a quarter of those started in 2011.
Even rarer are successful prosecutions of high-ranking insiders and so-called "gate-keepers," such as brokers and advisers – just the sort of individuals targeted in the Amaya probe.
There is no guarantee that a national regulator would do a better job of pursuing insider traders.
But faced with an offence that's notoriously tough to prosecute, common sense suggests that regulators should pool their resources and target their efforts.