Canada: Peter Volk (Re), 2018 ONSEC 31 (Settlement Agreement)

Last Updated: June 29 2018
Article by Nigel Behrens

What follows is a summation of a settlement agreement ("Settlement Agreement") entered into between the Ontario Securities Commission ("OSC") and Peter Volk ("Volk") and is not the result of an OSC tribunal decision nor that of a recognized court in Canada. The Settlement Agreement is based on facts that are perhaps even an expansion of the circumstances of the Lambert settlement agreement with the Alberta Securities Commission. For an overview of the Lambert decision, see Schedule "A" attached hereto.

The Settlement Agreement

Volk was the general counsel to Pacific Rubiales Energy Corporation (currently named Frontera Energy Corporation ("Pacific")) from 2004 to March 2018. Pacific is a Canadian oil and gas company whose common shares trade on the Toronto Stock Exchange. Volk was investigated by the OSC over concerns regarding his trading in Pacific debentures at a time when Pacific was involved in a due diligence process regarding its potential acquisition by two would-be purchasers. As Pacific's general counsel, OSC Staff's position was that Volk:

  1. was in a position of high responsibility and trust;
  2. was subject to a high professional standard; and
  3. was required to avoid any appearance of a conflict of interest and of the misuse of confidential information related to Pacific.

As a result of the investigation, Volk entered into the Settlement Agreement whereby he is required to:

  1. make a voluntary payment in the amount of $30,000 to be designated for allocation or use by the OSC in accordance with the Securities Act, RSO 1990, c S.5 (the "Act");
  2. obtain external legal advice in regard to any and all future trades in securities of issuers of which Volk is an insider, in circumstances where Volk is required to self-assess at the time of the trade whether he is in possession of material, generally undisclosed information related to the issuer, for a period of two years from the date of the Settlement Agreement;
  3. successfully complete either the Directors Education Program of the Institute of Corporate Directors, or the Partners, Directors and Senior Officers Course of the Canadian Securities Institute within 2 years from the date of the Settlement Agreement; and
  4. pay costs in the amount of $10,000, pursuant to section 127.1 of the Act (Orders in the Public Interest).

The Insider Trading Policy

Pacific's insider trading policy (the "IT Policy") required all employees, including Volk, to sign documentation acknowledging that they were aware of the IT Policy and that they agreed to follow it. The IT Policy covered among other things, prohibitions on insider trading and tipping, insider reporting obligations and trading during blackout periods. Under the IT Policy, blackout periods were imposed in relation to Pacific's financial disclosures and in relation to the knowledge of material, generally undisclosed information held by Pacific employees. The imposition of blackout periods was at Volk's discretion.

Material Timeline

Interest in Acquiring Pacific (October 2014 — July 2015)

  • October 17, 2014 – Pacific receives a confidential, non-binding letter of intent from ALFA S.A.B. de C.V. ("ALFA"), a Mexican conglomerate, proposing a potential acquisition of all outstanding Pacific common shares at a price of $20.00 per share.
  • October 21, 2014 – a blackout is instituted in relation to the preparation and filing of Pacific's quarterly financial information. The blackout is lifted on November 7, 2014 upon filing of that information.
  • October 31, 2014 – despite ALFA's interest, the period by which ALFA and Pacific were to execute a confidentiality agreement with respect to a potential transaction expired in large part because Pacific's stock price had declined significantly. ALFA did not commence any due diligence review of Pacific with regard to a potential transaction.
  • December 2, 2014 – Volk imposes a blackout that lasts until December 9, 2014 in relation to the entering into of a joint venture with ALFA on Mexican opportunities, unrelated to any interest ALFA may have had in acquiring Pacific.
  • December 28, 2014 – Harbour Energy Ltd. ("Harbour"), an investment vehicle specializing in private investments in energy and energy-related infrastructure, delivers Pacific a due diligence request in respect of a potential acquisition of Pacific.

    No binding offer is made and no price or transaction structure is proposed, but the parties enter into a confidentiality agreement to allow Harbour to commence due diligence investigations in order to determine whether it wishes to make a binding offer.
  • February 4, 2015 – ALFA and Pacific enter into a confidentiality agreement, which provides ALFA with access to non-public Pacific information for the purposes of conducting a due diligence review for the potential acquisition of Pacific by ALFA.
  • February 13, 2015 – Volk purchases US$100,000 par value Pacific senior unsecured notes (the "Notes") for a total of $75,349.31 (the "Note Purchase")1.

    In making the Note Purchase, Volk self-assessed (pursuant to the IT Policy) that he had no knowledge of any material, generally-undisclosed information.
  • March 2015 – ALFA and Harbour each advise Pacific that they are unwilling to propose a transaction with Pacific without a partner. In response, Pacific introduces Harbour and ALFA in respect of a possible joint offer.
  • March 9, 2015 – Volk imposes a blackout in response to the joint expression of interest by ALFA and Harbour to acquire Pacific. The March 2015 blackout was in effect until on or around May 15, 20152.
  • April 26, 2015 – ALFA and Harbour deliver a non-binding expression of interest to acquire Pacific (the "Expression of Interest").
  • May 20, 2015 – an agreement for ALFA and Harbour to acquire Pacific for $6.50 per common share is reached.
  • July 2015 – despite negotiations between all three parties, ultimately the Expression of Interest is withdrawn and no acquisition of Pacific occurs.

INSIDER TRADING

Insider Knowledge

Pursuant to the OSC's investigation, it was agreed that, on the date of the Note Purchase, Volk had knowledge of the non-binding expression of interest received from Harbour by at least January 8, 2015 (which expression lacked material terms, such as a price), the ongoing Harbour due diligence process and meetings between Harbour and Pacific related to the due diligence (the "Harbour Facts").

With respect to ALFA, it was agreed that Volk knew about a February 4, 2015 confidentiality agreement and ALFA having been granted access to confidential Pacific information to conduct due diligence with respect to a potential transaction, although ALFA had not yet commenced its due diligence investigations (the "ALFA Facts").

Contrary to the Public Interest

The OSC alleged, and it was ultimately agreed that, as Pacific's general counsel and the person who supervised Pacific's IT Policy (which allowed him to self-assess whether he was in possession of material, generally- undisclosed information when contemplating a trade in Pacific securities), he was in a position of high responsibility and trust and was subject to a high professional standard to avoid any appearance of conflicts of interest and any appearance of misuse of confidential information related to Pacific. As a result, the OSC found that a prudent course of action for Volk would have been to err on the side of caution given his knowledge of the Harbour Facts and ALFA Facts and refrain from purchasing Pacific securities. Volk's conduct was found to be contrary to the public interest, as he failed to adhere to the high standard of conduct expected of him in the circumstances.

Takeaways

  1. The Settlement Agreement is illustrative of the position taken by OSC staff and, while approved by the OSC as being within the range of reasonable dispositions available in the circumstances, it was not a decision of the OSC on the merits, but is indicative of the approach that staff may take in similar circumstances.
  2. Persons such as Volk, who are in a position of responsibility and trust may be subjected to a higher professional standard to avoid any appearance of conflicts of interest and any appearance of misuse of confidential information. In this case, Volk was general counsel and the person who supervised the IT Policy, which allowed him to self-assess whether he was in a position of material, generally undisclosed information when trading.
  3. It is the law, that notwithstanding any reasoned analysis as to whether undisclosed information is material, the Commission (and staff) may and will second guess that decision.
  4. The prudent course of action is to err on the side of caution.

Footnotes

1 Volk earned no profit from his trading in the Notes and in fact lost almost the entire value of them due to Pacific entering CCAA proceedings.

2 Volk was not only responsible for self-assessing his own trades, but also the trades of all insiders. Throughout the period between the end of the blackout in November 2014 and the imposition of the blackout in March 2015, a number of trades were proposed and executed by insiders after assessment by Volk; in all cases, he was of the opinion that no material, undisclosed information existed at the time of the trades, an assessment that he applied to the Note Purchase as well

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions