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The Court of Appeal restored the OSC's insider trading findings, affirming the use of circumstantial factors to prove successive tippees ought reasonably to have known their source's special relationship.
This appeal concerns the interpretation and application of section 76(5)(e) of the Securities Act regarding insider trading and tipping liability for successive tippees.
The appellants received material non-public information about a takeover bid for Masonite International Corporation through a chain of tippers.
The core issue is whether successive tippees who did not have actual knowledge that their source was in a special relationship with the issuer "ought reasonably to have known" this fact.
The Court of Appeal upheld the Ontario Securities Commission's findings against Miller but reversed the Divisional Court's decision to overturn findings against Cheng, restoring the OSC's liability and sanctions determinations.
Freeze directions continued under the Securities Act’s lower post-amendment threshold.
The applicant securities regulator sought continuation of freeze directions issued against corporate respondents and an individual respondent during an ongoing investigation into alleged unregistered trading and illegal distributions.
The court held that the 2014 enactment of s. 126(5.1) of the Securities Act displaced the prior Mareva-like Sextant test, although that framework remained a useful guide.
Applying s. 126(5.1), the court found a serious issue to be tried, a sufficient connection between the frozen assets and the alleged misconduct, and a demonstrated need to preserve assets for the due administration of securities law and protection of investors.
The application to continue the freeze directions was granted, the respondents' motion to revoke or vary them was dismissed for lack of jurisdiction, and no costs were ordered.
