A series of recent Alberta Securities Commission decisions
recently underscored the inherent dangers of buying or selling
securities of companies in which one is an insider. The risk is
that while the insider may legitimately believe they have no
undisclosed material information when they trade, a regulator can
later take a different view of the same information.
In its April 10, 2013 decision Re Stan, the respondent
insiders were acquitted of insider trading or tipping after a
14-day hearing, but incurred defence and expert witness costs
reputed to be in seven figures. The allegedly undisclosed material
information involved internal sales and production forecasts. ASC
staff believed the internal information to be sufficiently material
to preclude trading but the respondents (and the Panel)
In Re Keith, a 2012 decision in which BLG acted for one
of the respondents, insiders and family members were similarly
acquitted of insider trading and tipping arising out of a corporate
takeover. The allegedly improper trading took place in the period
immediately prior to the announcement of the takeover. There, too,
ASC staff believed that the insiders had certain material
information not yet generally disclosed. The Panel found that the
insiders did not have as much information about the takeover as
Staff alleged and what they did have was not material.
An example of a different outcome was Re Kapusta in
which insiders traded while in possession of certain information
pertaining to an oil discovery. Staff contended the information was
material and the respondents countered that the information was
contingent, speculative and not material to the company as a whole
in any event.
The Panel undertook a detailed review of the information,
concluded some of it was at a certain point material and determined
some of the trades to have contravened the Securities Act.
The lesson is "better safe than sorry". Insiders
always know something that the public doesn't,
so if there is the slightest doubt of whether information is
material, the company should consider disclosing it, absent which
insiders should think very hard about whether to trade even if they
believe they have no undisclosed material information.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
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