The US Supreme Court has declined to hear the United States'
challenge to the Second Circuit Court of Appeals' controversial
decision on insider trading in US v Newman
earlier this month.
This denial confirms government prosecutors, regulators and
policy makers in the United States need to re-examine their
respective approaches to insider trading and how they prosecute
cases. For example, it has been reported that as a result of the US
Supreme Court decision, top federal prosecutor in Manhattan Preet
Bharara has now dropped the insider trading charges against
Michael S. Steinberg — the highest-ranking employee at SAC
Capital Advisors to stand trial for insider trading — as well
as the guilty pleas of six cooperating witnesses.
As we have
previously written in an extensive analysis, the Second Circuit
Court of Appeal decision has been regarded as a sea change for
insider trading and tipping law in the US. Essentially, the
Newman case says that in order for a court to find an
insider guilty of "tipping", prosecutors must demonstrate
that he/she received a personal benefit for the tip.
Correspondingly, to succeed against the "tippee", the
prosecutor must prove that the tippee knew of the personal benefit
obtained by the "tipper".
Some observers and participants in the American white collar
criminal enforcement world point to the lack of statutory clarity
for insider trading prohibitions, as a culprit which has led to
increased uncertainty. In Canada, specific prohibitions are
contained in securities statutes and the criminal code. That is not
the case in the Unitised States. Indeed, recently Southern District
Judge Paul Engelmayer, speaking to the Securities and Litigation
Enforcement Institute of the New York City Bar, noted the need for
the US to have legislation defining insider trading. This
legislation would be in place of the US Supreme Court and the
Second Circuit developed body of law, which is "ad hoc, case
by case, essentially from scratch, [and] effectively as a matter of
federal common law." The uncertainty regarding prosecuting
insider trading cases in the US does not seem likely to be resolved
in the near future.
Notwithstanding the specific legislative provisions in Canadian
securities law, however, interpretations can and do vary, with
regards to the evidence leading to an insider trading or tipping
violation. For example, where circumstantial evidence is relied
upon, as is the case in many insider trading and tipping cases,
divergent findings are possible. For example, in Azeff, Re, the OSC found
that the circumstantial evidence amounted to clear and cogent proof
of a violation of securities law. On the other hand, the Alberta
Court of Appeal in Walton v Alberta Securities
Commission, albeit in a different context, suggested that
adjudicators will be required to ensure that presumptions about an
accused's state of mind need to have a reasonable basis in the
evidence, implying something more than mere circumstantial evidence
is required to meet the required standard.
We will continue to monitor and write about developments to both
the US and Canadian securities law as it evolves by way of judicial
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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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.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan 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.
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