Category Archives: Capital Markets Fraud & Insider Trading

Anti-Money Laundering & Terrorist Financing, Capital Markets Fraud & Insider Trading

Panama Papers: CRA getting tougher on tax evasion

We are beginning to see the legal enforcement fallout from the now infamous Panama Papers.  Canada Revenue Agency’s (CRA) concerted efforts to find undeclared offshore money and assets is moving into full gear. In addition to pursuing typical civil audits, the CRA is now executing search warrants and launching criminal investigations for tax evasion.

The CRA is actively gathering information from domestic and international sources to identify and charge offenders criminally. Since 2015, the Canadian government has required domestic financial institutions to report to the CRA all international electronic fund transfers of $10,000 or more.  In addition, as of March 2016 the CRA has analyzed over 41,000 transactions worth over $12 billion dollars, involving four jurisdictions and particular financial institutions of concern, and has initiated risk assessments on 1,300 individuals named in the Panama Papers. This has resulted in approximately 122 CRA audits to date and counting. However, it is not just taxpayers who are subject to the CRA’s scrutiny and who may be criminally charged. The CRA is also investigating the enablers and advisors, including the lawyers and accountants, who facilitated the hiding of taxpayer money and assets offshore.

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Analysis, Capital Markets Fraud & Insider Trading, United States

Inside Baseball: Former Baseball Star Convicted of Insider Trading

The phrase “inside baseball” took on new meaning for a former baseball star, Doug DeCines, who was recently convicted on insider trading and securities fraud charges.  Inside baseball is a term that usually refers to a detail-oriented approach to any subject, which requires a specific knowledge about what is being discussed, with nuances that are not easily understood by outsiders.  This term became reality for DeCinces when he was convicted on Friday, May 12, 2017 of illegal insider trading for a stock buy that earned him more than $1 million.

DeCines was no stranger to white collar crime allegations. On August 4, 2011, DeCinces, along with three others, was charged with securities fraud by the Securities and Exchange Commission (SEC).  The SEC alleged that DeCinces and his associates made more than $1.7 million in illegal profits when Abbott Park, Illinois-based Abbott Laboratories Inc. announced its plan to purchase Advanced Medical Optics Inc. through a tender offer. Without admitting or denying the allegations, DeCinces agreed to pay $2.5 million to settle the SEC’s charges.

Then in November 2012, DeCinces received a criminal indictment on insider trading in a related matter and was charged with securities fraud and money laundering.  Evidence at trial was that DeCinces was tipped off in 2009 that a Santa Ana-based medical device firm, Advanced Medical Optics, was going to be sold. The information came from the company CEO, James Mazzo, who was DeCinces’ neighbor in Laguna Beach, California, prosecutors argued. DeCinces bought more than 90,000 shares in the company days before Abbott Laboratories bought the firm, and he sold the shares for a profit of about $1.3 million, prosecutors said.[1]  On May 12, 2017, after a nearly two-month trial, a federal court jury in Santa Ana, California found him guilty on 13 charges.[2]

DeCinces, who is now 66 years old, will remain free on bail until sentenced. A hearing date was not immediately set for sentencing.  At the time of the merger, Advanced Medical Optics had seen its stock price plunge from more than $30 to under $10 in the wake of the 2008 Wall Street crash. It more than doubled after the merger was announced.

Canadian insider trading laws have not been as aggressively enforced as those in the U.S. The epic failure of the Ontario Securities Commission to secure a conviction in the prosecution of John Felderhof arising from the Bre-X Minerals scandals has now gained notoriety in the Hollywood movie Gold.[3]  There has only been one prosecution for insider trading under the Criminal Code, resulting in a guilty plea and a 39 month jail term for Stanko Grmovsek.[4]  Canada’s team, the Toronto Blue Jays major league baseball franchise, have been largely scandal free and is celebrating their 40th season in Toronto.

[1] http://www.nydailynews.com/newswires/sports/ex-baseball-star-doug-decinces-guilty-insider-trading-article-1.3160385

[2] Hannah Fry, Former Angels player Doug DeCinces found guilty of insider trading, Los Angeles Times (May 12, 2017). Retrieved on May 13, 2017.

[3] https://en.wikipedia.org/wiki/Gold_(2016_film)

[4] See, Insider Trading in Canada, 2nd Edition, 2017, Lexis Nexis, N. Keith, pp. 88-94

Alerts, Canada, Capital Markets Fraud & Insider Trading

OSC Launches Whistleblower Program

The Ontario Securities Commission (OSC) has launched the Office of the Whistleblower and published OSC Policy 15-601 Whistleblower Program effective July 15, 2016. Together, these initiatives establish a new whistleblowing program that offers financial awards of up to $5 million for tips on possible violations of Ontario securities law that lead to enforcement action.

The OSC program allows whistleblowers to make anonymous reports to the OSC, and new protections have been enacted for whistleblowers that access the program. In particular, the Securities Act has been amended to add anti-reprisal provisions protecting employees who have sought advice about, expressed an intention to or actually provided information about a possible securities violation to the OSC.  In addition, the Act invalidates gag or confidentiality provisions or agreements that would otherwise silence or prevent whistleblowers from participating in an investigation.

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Analysis, Canada, Capital Markets Fraud & Insider Trading

Can the OSC sharpen its teeth and take a bite out of enforcement, or lack thereof?

The enforcement efforts of the Ontario Securities Commission (OSC), the regulator that administers and enforces compliance with the provisions of the Securities Act (Ontario) and the Commodity Futures Act (Ontario), have had mixed success— at best. With a mandate to protect investors and ensure fair and efficient capital markets through monitoring compliance and enforcement measures in the securities industry in Ontario, the regulatory body has been struggling to be taken seriously. Having taken a chapter from the playbook of the American national Securities Exchange Commission (SEC), prosecuting individuals for Insider trading, tipping, and securities fraud, the initial results, which are highlighted below, were underwhelming. Now, in a renewed effort to assert its presence in the capital markets as a regulator with teeth, the OSC is taking new approaches, with more promising results.

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Analysis, Canada, Capital Markets Fraud & Insider Trading, International Trends in White Collar Enforcement

New era of White Collar Crime enforcement in Canada

Recent trends have seen legislative penalties increase, prosecutors cracking down, and more individuals going to jail.  We have entered a new era of white collar crime enforcement in Canada.

In mid-2013, the Corruption Foreign Public Officials Act (CFPOA) was amended by the Federal Government.  It introduced a “new books and records” offence, increased the maximum jail time to 14 years for individuals, and promised to phase out the legality of facilitation payments.  The Royal Canadian Mounted Police (RCMP) was assigned the exclusive jurisdiction over investigation and laying charges under the CFPOA and given an enhanced increase in their mandate to investigate and prosecute more corporations and individuals, which it is doing.

Following this, the RCMP prosecuted Nazir Karigar, a Canadian-Indian business man, under the CFPOA. At his lengthy trial it was never proven that he gave a bribe to an Air India (foreign) official, as alleged; the Crown did prove, to the court’s satisfaction, that he intended to pay a bribe to secure business with Air India for an American company. That was enough to convict and send him inside for 3 years.

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