The Ontario Securities Commission (OSC) issued an Order
approving a settlement agreement between OSC staff
("Staff") and Anand Hariharan in
connection with insider trading allegations against Hariharan
regarding his trading of a non-reporting issuer's option
contracts (the "Settlement Agreement").
Notably, in deciding to issue the Order, the OSC applied insider
trading principles contemplated by Ontario's Securities
Act (the "Act") to a non-reporting
issuer as a matter of "public interest" pursuant to
sections 127 and 127.1 of the Act. The OSC found Hariharan's
misuse of material confidential information impugned the integrity
and fairness of the capital markets, notwithstanding his conduct
did not technically contravene the insider trading prohibitions set
out in section 76(1) of the Act because the option contracts were
not those of an Ontario reporting issuer.
This decision could indicate a trend by the OSC to cast a wider
net of circumstances it views should be subject to insider trading
prohibitions even where there has been no technical contravention
of the rules or regulations. The decision also further enhances and
solidifies the OSC's ability to police the misuse of material,
confidential information in a variety of circumstances, including
with respect to non-reporting issuers, rather than leave such
policing efforts to the person(s) to whom that information
The decision serves as a reminder to all market participants of
the importance of maintaining the confidentiality of material
non-public information in respect of all issuers, whether public or
non-reporting, and the seriousness with which Canadian securities
regulators will treat violations of the tipping and insider trading
prohibitions and the principles underlying such prohibitions.
Hariharan's conduct involved the purchase and subsequent
sale of option contracts of a non-reporting issuer called Loral
Space & Communications Inc. (Loral). The trades were made based
on a tip from Hariharan's close childhood friend Satish
Talawdekar who disclosed material, non-public information
concerning the purchase of Loral's major subsidiary by
MacDonald, Dettwiler & Associates Inc. (MDA), a reporting
issuer and, at the relevant time, Talawdekar's employer.
The acquisition, publically announced on June 26, 2012, was
transformative for MDA and Loral and resulted in significant market
impact on the trading value of each company's stock.
Hariharan's purchase of Loral's option contracts
immediately before the bid announcement, and his subsequent sale of
such contracts immediately following the acquisition announcement,
resulted in a net profit to Hariharan of over $68,000, or a 623%
return in one day.
On March 11, 2015, Staff and Hariharan entered into the
Settlement Agreement. The Settlement Agreement prohibited Hariharan
from trading in any securities (absent certain limited exceptions)
for a period of 10 years, and required Hariharan to make a
voluntary payment to the OSC of $35,000 (plus $5,000 in costs).
Staff recommended the OSC grant an Order approving the Settlement
Agreement. On March 31, 2015, the OSC held a hearing to consider
whether, pursuant to sections 127 and 127.1 of the Act, it would be
in the public interest for the OSC to issue the Order.
The OSC Decision
The OSC determined that while Haliharan's trading of the
Loral call option contracts did not technically contravene section
76(1) of the Act (because Loral was not an Ontario reporting
issuer), his conduct impugned the integrity and fairness of the
capital markets because he misused material, confidential
information obtained from Talawdekar. Consequently, the OSC held
that Hariharan's conduct was contrary to the public interest
pursuant to sections 127 and 127.1 of Ontario's Securities
Act and issued the Order approving the Settlement Agreement
and the penalties and payments set forth therein.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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