Canada: A Rare Case Of Market Manipulation

In a rare case of market manipulation, the Bureau de décision et de révision (the Bureau), the Québec administrative tribunal specialized in financial markets, recently issued a decision (available in French only), giving effect to an agreement between the Autorité des marchés financiers (the AMF) and Mr. Michel Galipeau (Galipeau) condemning the latter to an administrative penalty of $20,000.

While the Bureau's reasons are terse, given the absence of a dispute before it, the decision takes on a certain interest in so far as it reminds us of the actions and behaviours which may draw the AMF's attention and may bring about the enforcement of Section 195.2 of the Securities Act (the Act).

Section 195.2 of the Act provides that the act of "influencing or attempting to influence the market price or the value of securities by means of unfair, improper or fraudulent practices" constitutes an offence punishable by an administrative penalty of up to $2,000,000.1 It is interesting to note that the legislation does not provide a definition of such "unfair, improper or fraudulent practices" and these terms are scarcely mentioned in jurisprudence, hence the importance of this case.

Galipeau's offences involved a series of transactions on the securities of a company whose shares were traded on the TSX Venture Exchange (the Company). For each transaction, Galipeau would acquire the Company's shares at market price. Within minutes, he would resell them at a higher price to one of his trading companies. It appears from the AMF's statement of facts that Galipeau thus cashed in a net profit of a little more than $6,700.

Reiterating the goal underlying the prohibition of s. 195.2 of the Act, namely to maintain public confidence in the integrity of the markets, the AMF identified the indications of Galipeau's tampering with the Company's stock price:

  • In order for his strategy to succeed, Galipeau's buy orders as well as his companies' sell orders were always set at distant bid and ask prices, for both the same amount of shares and the same price per share, thus ensuring a match. Such transactions are called "improper matched orders";
  • Each transaction represented a significant proportion (20% to 100%) of the daily volume of operations on the Company's stock;
  • Transactions between Galipeau and his trading company did not bring about a real change of beneficial owner given that Galipeau effectively controlled both sides of the transaction, which constitutes wash-trades;
  • Galipeau's transactions directly impacted the company's stock price. In that sense, they amounted to ramping, i.e. an artificial increase of a stock price in order to give the false impression of activity on that stock, thus turning a quick profit.

Ultimately, Galipeau acknowledged all of the facts exposed by the AMF and the parties agreed on a $20,000 administrative penalty amounting to three times the net profits pocketed by the offender.


1. Section 273.1 of the Act. Take note that the AMF may also file penal proceedings against an offender and seek the penalties provided for at Sections 204.1 and 208.1 of the Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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