CITATION: Fiorillo v. Ontario Securities Commission, 2016 ONSC 6559

DIVISIONAL COURT FILE NO.: 15-370, 15-372, 15-374

DATE: 20161026

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

MARROCCO A.C.J.S.C., MORAWETZ R.S.J. & DAMBROT J.

BETWEEN:

HENRY FIORILLO

Appellant

– and –

DENNIS WING

Appellant

-and-

KIMBERLEY STEPHANY

Appellant

• and -

ONTARIO SECURITIES COMMISSION

Respondent

Peter Howard and Ellen Snow for Henry Fiorillo

Lawrence Ritchie, Shawn T. Irving and Catherine Gleason-Mercier for Dennis Wing

David C. Moore and Kenneth G.G. Jones for Kimberley Stephany

Cullen Price, Albert Pelletier and Christophe Shammas, for the Respondent

HEARD: JUNE 21, 22 & 23

MARROCCO A.C.J.S.C.

1This appeal is from a decision of the Ontario Securities Commission (the “Commission”) arising from a Notice of Hearing issued pursuant to sections 127 and 127.1 of the Securities Act, R.S.O. 1990, c. S.5, as amended (the “Act”), in connection with a Statement of Allegations filed by Enforcement Staff (“Staff”) on February 7, 2012 against Henry Fiorillo (“Mr. Fiorillo”), Dennis Wing (“Mr. Wing”), Pollen Services Limited (“Pollen”), Kimberley Stephany (“Stephany”), and others.

2The appellants appeal from the decisions of the Commission dated February 11, 2015 and June 24, 2015 (the “Merits Decision” and the “Sanctions Decision”, respectively).

3In each of these appeals, the fundamental question before the Commission was whether the appellants received material nonpublic information about reporting issuers from a person named Eda Marie Agueci (“Ms. Agueci”) and then traded in securities of those reporting issuers before that information became public. Ms. Agueci was an administrative assistant to the Chairman of GMP Securities L.P. ("GMP'') – an investment banker involved in transactions or proposed transactions respecting those reporting issuers.

4Ms. Agueci did not appeal the Commission’s finding that she tipped the appellants about reporting issuers Energy Metals Corporation (EMC), HudBay Minerals Inc. (HudBay), Coalcorp Mining Inc. (Coalcorp), Northern Orion Resources Inc. (Northern) and Meridian Gold Inc. (Meridian).

Insider Trading and Circumstantial Evidence

5Circumstantial evidence usually forms the bulk of the evidence in cases where insider trading and tipping are alleged.

The Commission Decision on the Merits

6The Commission decided that all three appellants, by engaging in insider trading, acted contrary to section 76 of the Act and contrary to the public interest as provided for in section 127(1) of the Act.

7In addition, the commission made findings related to one of the appellants, Mr. Wing, and against Pollen Services Ltd. – a company that was established by Mr. Wing and over which he had sole signing and trading authority.

8The Commission determined that the appellant Mr. Wing authorized, permitted or acquiesced in Pollen’s breaches of the Act contrary to section 129.2 of the Act.

9The Commission also determined that Mr. Wing made misleading statements contrary to section 122 of the Act. Mr. Wing does not appeal this finding of the Commission.

The Standard of Review

10This court has established that decisions of the Commission will be reviewed on a reasonableness standard. See Northern Securities Inc. v Ontario (Ontario Securities Commission), 2015 ONSC 3641 at para. 4.

11This court has specifically applied a reasonableness standard of review to insider trading decisions of the Commission. See Donnini v. Ontario Securities Commission, [2003] O.J. No. 3541 at para. 20, rev’d on other grounds 2005 1622 (ON CA), [2005] 76 O.R. (3d) 43 (C.A.).

12I recognize that if a party raises an issue of procedural fairness, the Court does not engage in a standard of review analysis. Rather, it determines whether the requisite level of procedural fairness has been accorded, taking into account the factors in Baker v. Canada (Minister of Citizenship and Immigration), 1999 699 (SCC), [1999] 2 S.C.R. 817. See London (City of) v. Ayerswood Development Corp., 2002 3225 (ON CA), [2002] O.J. No. 4859 (C.A.) at para. 10.

13The Supreme Court in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 described the reasonableness standard of review at para. 47:

Reasonableness is a deferential standard animated by the principle that underlies the development of the two previous standards of reasonableness: certain questions that come before administrative tribunals do not lend themselves to one specific, particular result. Instead, they may give rise to a number of possible, acceptable and rational solutions. A court conducting a review for reasonableness inquires into the qualities that make a decision reasonable, referring both to the process of articulating the reasons and to outcomes. In judicial review, reasonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process. But it is also concerned with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law.

14Although Dunsmuir was a judicial review case rather than an appeal, the Supreme Court of Canada stated in Dr. Q v. College of Physicians and Surgeons of British Columbia, 2003 SCC 19, [2003] 1 S.C.R. 226 at para. 21: “The term ‘judicial review’ embraces review of administrative decisions by way of both applications for judicial review and statutory rights of appeal.”

15This Court applies a deferential standard of review to Commission insider trading decisions because it recognizes that, when deciding those cases, the Commission’s core expertise in regulating market activity allows it to draw inferences from facts relating to marketplace conduct.

16Remedial orders or sanctions will not be overturned on appeal unless they are demonstrably unfit, based on some error of principle, or are otherwise unreasonable: Re Cartaway Resources Corp., 2004 SCC 26 at paras. 48-52, [2004] 1 S.C.R. 672.

An overview of the four transactions at issue on this appeal

17In this part I will describe in general terms the commercial transactions or proposed transactions that resulted in material non-public information at issue in this case.

The EMC Transaction

18During the relevant period of May and June 2007, EMC was a reporting issuer in Ontario. In early 2007, SXR Uranium One (“SXR”) and EMC began negotiations relating to a transaction whereby SXR would purchase all outstanding EMC shares at a premium. Both companies were in the uranium extraction business, but at different stages of development. EMC’s market capitalization was $1.3 billion and SXR’s was $6.3 billion. By January 11, 2007, SXR and EMC had executed a Confidentiality and Non-Disclosure Agreement so that they could explore the feasibility of entering into a business transaction.

19On May 4, 2007, the President and CEO of EMC announced a trading blackout on insiders due to a pending material transaction. On May 5, 2007, SXR’s Executive Vice President of Corporate Affairs advised SXR’s directors that negotiations to acquire EMC had concluded and that the parties wished “to bring the transaction to an announceable stage as soon as possible.”

20On May 7, 2007, the President of EMC approached GMP to ask whether GMP would provide financial advice to EMC’s special committee in connection with SXR’s proposal. GMP accepted the mandate and added both issuers to GMP’s grey list. Issuers were placed on the GMP grey list when GMP obtained material non-public information about the issuer.

21On May 10, 2007, the EMC board of directors met to appoint a special committee to continue negotiations with SXR. EMC and SXR exchanged a draft business combination agreement on the same day. SXR had previously performed extensive analysis, including a tour of EMC properties, reserve and resource analysis and financial modelling to arrive at an exchange ratio of 1.15 SXR per EMC share. The draft combination was shared with GMP by May 10, 2007, so that GMP could determine if the share exchange ratio was fair.

22GMP delivered a draft fairness opinion concerning the share exchange ratio to the EMC special committee on May 15, 2007, indicating that, in GMP’s opinion, the transaction was fair from a financial point of view, which was then presented to the EMC board of directors the next day.

23On May 18, 2007, Market Regulation Services contacted EMC to inquire about irregular trading activity in its shares. As a result, EMC issued a press release after the market close that day, indicating that it was “in exclusive negotiations with respect to a potential sale of the company” but that “[n]o assurance can be given that the negotiations will be successful.” The following trading day, EMC’s stock price jumped 10.6%. Further activity occurred over the next few weeks, in furtherance of the transaction.

24On June 4, 2007 at 8:18 a.m. EST, EMC and SXR issued a joint press release declaring that they had signed a definitive agreement whereby SXR would acquire all the shares of EMC at a ratio of 1.15 SXR shares for each share of EMC, representing a 28% premium to the 20-day volume weighted average trading price for the period ending May 17, 2007.

The Northern / Meridian Transaction

25During the relevant period of May and June 2007, Northern Orion Resources Inc. and Meridian Gold Inc. were reporting issuers in Ontario. In May 2007, Northern was a mid-tier copper and gold producer with a market capitalization of approximately $1.4 billion, and Meridian was a mid-tier gold producer with a market capitalization of approximately $3.1 billion. In addition, Yamana Gold Inc. (Yamana) was a gold producer with market capitalization of approximately $5 billion.

26In the spring of 2007, Northern and Yamana had discussions concerning a potential three-way business combination with Meridian. Yamana proposed to acquire 100% of the outstanding common shares of Northern in an all-share transaction and to subsequently acquire all of the outstanding common shares of Meridian in a cash and share offer. Yamana’s original offer was a 25% premium for the shares of each of Northern at $7 per share and Meridian at $34.15 per share, based on the 20-day volume weighted average share price of each target. In this two-stage transaction, Yamana was proposing an all-share offer for Northern shares, conditional on the successful completion of the Meridian acquisition. The Northern acquisition was to be pre-agreed and announced at the time of the Meridian offer, using a portion of Northern’s cash to fund the Meridian offer. The Meridian offer later became an offer of $33.84 per share for a 20% premium. The transaction was a 3-way amalgamation by way of a plan of arrangement on a friendly basis.

27In late April to early May 2007, Yamana sought the views of Genuity Capital Markets (“Genuity”), a financial advisor, with respect to the proposed transaction. On May 18, 2007, a summary presentation was made by Genuity and Yamana to the CEO of Northern regarding the proposed three-way business combination with an offer of $7 per Northern share at an assumed premium of approximately 25% and $34.15 per Meridian share, which also represented a 25% premium.

28On May 23, 2007, Genuity advised Yamana that they had spoken to Northern and that Northern “clearly want to see a deal get done – all discussions have been very positive and constructive.” Genuity also advised Yamana that “there are no issues that can’t be resolved – all good.”

29Between May 25 and June 27, 2007, Yamana and Northern each conducted due diligence on the other party, as negotiations continued.

30Genuity made a presentation to the Yamana board of directors with respect to the proposed three-way business combination on May 25, 2007. On May 26, 2007, this presentation was sent by the CEO of Northern to the Northern board of directors, along with other background documentation on Yamana and Meridian.

31On May 28, 2007, the CEO of Northern forwarded details of the proposed three-way business combination to GMP. Northern, Meridian and Yamana were added to GMP’s grey list on May 28, 2007. On June 11, 2007, Northern requested that GMP deliver a verbal fairness opinion by June 14, 2007.

32On June 15, 2007, Yamana approached Meridian with respect to the proposed three-way business combination. On June 17, 2007, the president of Northern emailed the Northern board of directors, GMP and others with an update of his meeting with the CEOs of Meridian and Yamana reporting that Meridian’s CEO, had given a positive response and “indicated that if he could attract a 24-26% premium, it was a done deal”.

33On June 27, 2007, at 9:09 p.m., Yamana and Northern jointly announced that they had entered into a business combination agreement and a concurrent proposal had been made to Meridian with respect to the combination of the three companies. The expected terms as announced included: cash and share consideration for Meridian, which represented a spot premium of approximately 23% over Meridian's closing share price on June 27, 2007, and a share exchange between Yamana and Northern shares, a 21.3% premium over Northern's closing share price on June 27, 2007.

The HudBay Transaction

34During the relevant period from July 1, 2007 to September 30, 2007, HudBay was a reporting issuer in Ontario. In July 2007, HudBay was a Manitoba-based company listed on the TSX with a market capitalization of approximately $3 billion and a producer of zinc, copper, gold and silver. At that time, Votorantim Metals Inc. (“Votorantim”) was a large, privately-owned Brazilian company with annual revenues of between $10 billion to $12 billion with interests and production in zinc, nickel and steel, among others.

35From December 2006, HudBay had been developing a large cash position, which, together with the then-active market for resource companies, made HudBay an attractive takeover target. Speculation about a possible takeover bid for HudBay existed in the marketplace throughout 2007.

36On December 8, 2006, HudBay retained GMP to act for the special committee of the board of HudBay in respect of an offer that HudBay then expected to receive. HudBay was added to the GMP grey list and a file was opened at GMP but no offer was received at that time.

37When Votorantim initially approached HudBay verbally in late June 2007 about a possible offer to acquire it, HudBay was added to the GMP grey list again on July 3, 2007, but was removed from the GMP grey list on July 12, 2007 because the transaction appeared improbable.

38On July 17, 2007, the CEO of HudBay received a confidential non-binding written proposal from Votorantim to acquire 100% of the issued and outstanding shares of HudBay for an all-cash consideration of between $30 and $32 per HudBay share, which was a premium of approximately 26% over the 20-day average price of $25.82 per HudBay share, subject to the completion of due diligence and the negotiation and execution of a definitive agreement (the “Votorantim Proposal”).

39The Chairman of HudBay called GMP on July 17, 2007 and advised that HudBay had received the Votorantim Proposal and communicated its terms. The Chairman asked GMP to advise the special committee of the board of HudBay in respect of the Votorantim Proposal. GMP agreed and on that same day placed HudBay on GMP’s grey list.

40On July 17, 2007, GMP contacted Lazard Ltd., a multinational M&A financial advisory firm, to determine whether it could assist GMP in providing strategic advice to HudBay in respect of the Votorantim Proposal.

41On July 18, 2007 at 4:37 p.m., the Chairman of HudBay forwarded the Votorantim Proposal to GMP. On July 19, 2007, the Chairman of HudBay called a meeting of the HudBay board of directors calling a meeting for July 23, 2007 at 9:00 a.m. to, among other things, “review and discuss the confidential non-binding proposal dated July 17, 2007”. On July 20, 2007, GMP provided HudBay with a preliminary valuation analysis that more value should be attributable to HudBay so that the Votorantim Proposal could be fair from GMP’s assessment.

42On August 2, 2007, the Chair of the HudBay special committee responded to Votorantim indicating that the Votorantim Proposal required careful consideration and that as a preliminary response, the special committee was “not satisfied that the indicative offer price” was sufficient.

43GMP was copied on an email of August 7, 2007, which indicated that by that time HudBay anticipated that Votorantim would make a due diligence site visit and HudBay was preparing to commit approximately $250,000 to establish a virtual data room that would make it possible for Votorantim to conduct certain due diligence on HudBay.

44On August 19, 2007, Credit Suisse, Votorantim’s financial advisor, communicated to GMP that Votorantim confirmed the dates of September 7-9, 2007 for its site trip to Winnipeg and Flin Flon, Manitoba. GMP communicated that information to HudBay’s CEO and others on that same day. On September 11, 2007, HudBay and Votorantim were negotiating the terms of a follow-up site visit.

45On September 19, 2007, GMP emailed members of the HudBay special committee and others on behalf of the Chairman of HudBay to advise that after Votorantim’s board meeting, “it appears they won’t be proceeding to the next stage” and “they couldn’t get to the value expectations.”

46HudBay was removed from GMP’s grey list on September 25, 2007.

The Coalcorp Transaction

47During the relevant period between December 1, 2007 and February 29, 2008, Coalcorp was a reporting issuer in Ontario. At that time, Coalcorp was a Colombia-based coal mining, exploration and development company listed on the TSX and as of January 30, 2008 had a market capitalization of approximately $186 million.

48On January 29, 2008, at 12:57 p.m., an investor group led by Pala Investments Holdings Limited (Pala) submitted to Coalcorp an unsolicited non-binding written proposal to acquire Coalcorp by way of an all-cash offer for 100% of the outstanding common shares of Coalcorp for a price of $2.75 per share plus the assumption of all of Coalcorp’s existing net debt (the “Pala Group Proposal”). The Pala Group Proposal indicated that its terms represented a premium of 51% on the closing price of Coalcorp common shares on the TSX on January 28, 2008 and a premium of 39% to the 20-day volume-weighted average price.

49Pala was a US$1 billion multi-strategy alternative investment company with a particular focus on mining and natural resources in both developed and emerging markets. In January 2008, Pala was the largest shareholder of Coalcorp, holding 19.1% of Coalcorp’s total common shares outstanding, having recently increased its stake in stages from a holding of 9.8%, which it had acquired prior to December 12, 2007.

50On January 29, 2008, The Pala Group Proposal was sent to the CEO and Co-Chairman of Coalcorp by email. Within 11 minutes after receiving the Proposal, the CEO of Coalcorp forwarded the Pala Group Proposal by email to the General Counsel and Secretary of Coalcorp. Within less than five minutes, the Pala Group Proposal was forwarded to GMP and Coalcorp’s legal advisors and four other employees of Coalcorp.

51GMP discussed the terms with the CEO of Coalcorp who viewed it as bona fide and thought that Coalcorp should pursue it.

52Previously, in November 2007, when Pala had acquired just under 10% of Coalcorp’s common shares, Coalcorp signed an engagement letter agreement with GMP, under which GMP was to provide financial advisory services in respect of reviewing strategic options for Coalcorp. Coalcorp was added to GMP’s grey list on November 30, 2007.

53On January 29, 2008 at 2:37 p.m., the Secretary of Coalcorp emailed the Pala Group Proposal to the board of directors of Coalcorp and indicated that Coalcorp was in the process of considering the offer and consulting with GMP. By January 30, 2008, GMP was engaged to advise Coalcorp in respect of the Pala Group Proposal.

54At 10:30 a.m. on January 31, 2008, the meeting of the board of directors of Coalcorp commenced. The participants discussed the Pala Group Proposal and the proposed response by Coalcorp. The directors established and authorized a special committee to take carriage of the Pala Group Proposal mandate.

55At 11:08 a.m. on January 31, 2008, Pala sent an email to GMP asking about a possible leak of material non-public information in the market regarding the Pala Group Proposal, including the price of $2.75 as a cash bid. It was concluded that Coalcorp must issue a news release announcing the receipt of the Pala Group Proposal.

56On February 1, 2008 at 7:46 a.m. GMP advised that they had “been dealing with the Pala people and we seem to be at an impasse” and advised that Pala would “not proceed without clarity on price” and had “suggested that the process be put on hold” until Coalcorp is “in a position to give them comfort on price.”

57Prior to the opening of the market on February 1, 2008, Coalcorp issued a press release announcing that it had received a non-binding unsolicited proposal from an unnamed third party to acquire all of the common shares of Coalcorp and that the board of directors of Coalcorp had established a special committee to evaluate the proposal and to make recommendations to the board of directors. That day, at the opening of the market, the price of Coalcorp common shares increased 16% from the close on the previous trading day. At the end of the trading day on February 1, 2008, the closing price for Coalcorp common shares was $2.47 per share, which was a 12% increase from the closing price the day before.

58On Monday, February 4, 2008 at 5:29 p.m., Coalcorp issued a press release announcing that the non-binding unsolicited proposal to acquire all of Coalcorp’s common shares, which had been announced by Coalcorp on February 1, 2008, had expired on February 4, 2008 without the parties reaching an agreement as to arrangements for due diligence and exclusivity.

59On February 5, 2008, prior to the opening of markets, the Pala Group announced that it had terminated negotiations with Coalcorp.

60With the foregoing in mind, I propose to consider the three appeals with which we are concerned.

The appeal of Henry Fiorillo

Mr. Fiorillo’s background

61Henry Fiorillo appeals the Commission’s decisions dated February 11 and June 24, 2015. The Commission determined that he purchased shares of three public issuers (EMC, HudBay and Coalcorp Mining Inc.) while in possession of material non-public information obtained from Eda Marie Agueci and imposed sanctions on him for doing so.

62Mr. Fiorillo graduated with distinction from UBC in 1967 with a B.A. in Economics and Psychology. In 1969, he got an MBA at UCal Berkeley.

63In 1977, Mr. Fiorillo founded Research Management Group (“RMG”) with two partners. RMG served medium and large-sized companies in market research. In 1992, Fiorillo established Value Gap Advisors, a company conducting investor perception studies.

64Mr. Fiorillo was also a co-founder of a third company named Grip Limited, which became a leading Canadian advertising agency.

65In 2001, Mr. Fiorillo agreed to a buyout over time with a key RMG employee and Fiorillo ceded more decision-making at RMG. As a result, Fiorillo had considerably more free time.

66Between August 2004 and April 2010 Henry Fiorillo was a resident of Ontario.

67In 2004, Mr. Fiorillo and a partner established Alpha Scout Capital Management (“Alpha Scout”). Alpha Scout was a “fund of hedge funds” offered to high-net-worth Canadian investors. Alpha Scout was a registrant under the Act. Fiorillo, as an officer, became a registrant. In 2008, Alpha Scout was sold and thereafter Fiorillo ceased to be a registrant.

68By 2005, Mr. Fiorillo had accumulated considerable net worth from his business ventures. His assets were principally personal real estate and investment portfolios. Most of his investments were at eight to ten independent money managers and/or private equity funds.

69Between 10 and 15% of his net worth was in an investment portfolio that Mr. Fiorillo ran himself. This portfolio generally held $5-10 million. Mr. Fiorillo had been an active participant in the public markets for forty-five years. He was a prolific trader. Fiorillo traded in his personal portfolio at ten separate accounts held at a number of different financial institutions.

70Mr. Fiorillo and Ms. Agueci were friends who knew each other for more than 20 years.

The Commission Panel found the following concerning Mr. Fiorillo:

EMC Findings

71The OSC found the following occurred between May 8 and 18, 2007:

• EMC was a "reporting issuer" within the meaning of the Act;

• as an employee of GMP, Ms. Agueci was a person in a special relationship with EMC within the meaning of subsection 76(5) (c) of the Act;

• in her capacity as an employee of GMP, Ms. Agueci became aware of facts that would reasonably be expected to have a significant effect on the market price or value of the EMC securities and were therefore "material facts" with respect to EMC, within the meaning of the Act (“EMC Material Facts”);

• Ms. Agueci informed Mr. Fiorillo, other than in the necessary course of business, of the EMC Material Facts before they had been generally disclosed, contrary to subsection 76(2) of the Act and contrary to the public interest and section 127(1) of the Act;

• Mr. Fiorillo learned of the EMC Material Facts from Ms. Agueci, and knew or ought reasonably to have known that Ms. Agueci was a person in a special relationship with EMC and, as a result, Mr. Fiorillo was a person in a special relationship with EMC within the meaning of subsection 76(5)(e) of the Act;

• Mr. Fiorillo purchased EMC securities with knowledge of the EMC Material Facts that had not been generally disclosed, contrary to subsection 76(1) of the Act and therefore acted contrary to the public interest and section 127(1) of the Act.

HudBay Findings

72The OSC found the following occurred between July 17, 2007 and September 18, 2007:

• HudBay was a "reporting issuer" within the meaning of the Act;

• as an employee of GMP, Ms. Agueci was a person in a special relationship with HudBay within the meaning of subsection 76(5)(c) of the Act;

• in her capacity as an employee of GMP, Ms. Agueci became aware of facts that would reasonably be expected to have a significant effect on the market price or value of the HudBay securities and were therefore "material facts" with respect to HudBay within the meaning of the Act (HudBay Material Facts);

• Ms. Agueci informed Mr. Fiorillo, other than in the necessary course of business, of the HudBay Material Facts before they had been generally disclosed, contrary to subsection 76(2) of the Act and contrary to the public interest;

• Mr. Fiorillo learned of the HudBay Material Facts from Ms. Agueci, and knew or ought reasonably to have known that Ms. Agueci was a person in a special relationship with HudBay and, as a result, Mr. Fiorillo was a person in a special relationship with HudBay within the meaning of subsection 76(5)(e) of the Act;

• Mr. Fiorillo purchased HudBay securities with knowledge of the HudBay Material Facts that had not been generally disclosed, contrary to subsection 76(1) of the Act and therefore acted contrary to the public interest and section 127(1) of the Act.

Coalcorp Mining Inc. (Coalcorp) Findings

73The OSC found the following occurred between January 29 and February 1, 2008:

• Coalcorp was a "reporting issuer" within the meaning of the Act;

• as an employee of GMP, Ms. Agueci was a person in a special relationship with Coalcorp within the meaning of subsection 76(5) (c) of the Act;

• in her capacity as an employee of GMP Ms. Agueci became aware of facts that would reasonably be expected to have a significant effect on the market price or value of the Coalcorp securities and were therefore "material facts" with respect to Coalcorp, within the meaning of the Act (Coalcorp Material Facts);

• Ms. Agueci informed Mr. Fiorillo, other than in the necessary course of business, of the Coalcorp Material Facts before they had been generally disclosed, contrary to subsection 76(2) of the Act and contrary to the public interest;

• Mr. Fiorillo learned of the Coalcorp Material Facts from Ms. Agueci, and knew or ought reasonably to have known that Ms. Agueci was a person in a special relationship with Coalcorp and, as a result, was a person in a special relationship with Coalcorp within the meaning of subsection 76(5)(e) of the Act; and

• Mr. Fiorillo purchased Coalcorp securities with knowledge of the Coalcorp Material Facts that had not been generally disclosed, contrary to subsection 76(1) of the Act and therefore acted contrary to the public interest and section 127(1) of the Act.

Mr. Fiorillo’s objections to the OSC Panel Decision

The Commission’s compelled examination procedure was fair and unobjectionable

74The appellant objects to the fairness of his examination compelled pursuant to section 13 of the Act. He objects to the sufficiency of notice and documentary disclosure he received prior to the examination.

75There is no merit in this objection.

There is a low threshold of fairness at the investigative stage

76This Court has already stated that there is a low threshold of fairness at the investigative stage. See for example Gatti v. Ontario (Securities Commission), [2001] 144 O.A.C. 317 (Div.Ct).

77This conclusion is consistent with the application of the Baker factors to the Commission’s decision to investigate market activity and examine persons about that activity.

78Specifically, the application of the Baker factors results in the following observations.

The nature of the decision

79The decision to appoint an investigator under section 11 of the Act and the decision by an investigator to examine a person pursuant to section 13 of the Act does not affect the person’s registration or the person’s ability to trade in the capital markets.

The importance of the decision to compel a person to be examined

80No penalty is imposed as a result of a section 11 investigation order or a section 13 examination. However, a person can be prosecuted for attempting to mislead OSC Staff during such an examination. Indeed, the appellant Wing was successfully prosecuted for precisely that.

The role of the decision within the statutory scheme

81Pursuant to section 11 of the Act, the Commission may issue an order to appoint as many persons to investigate a matter as it considers expedient for the due administration of Ontario securities law or the regulation of the capital markets in Ontario. The order must describe the matter to be investigated.

82Once a section 11 order is issued, the investigator has the power to summon any person and to compel him or her to testify under oath and to produce documents pursuant to subsection 13(1) of the Act. A refusal to comply with an order to produce is equivalent to a contempt of the Superior Court for breach of a court order.

83The person conducting the investigation can apply for authorization to search a building or another place. The person conducting the investigation can be required to report the results of the investigation to the Chair of the Ontario Securities Commission.

84Subsection 13(2) of the Act provides a person or company giving evidence under subsection (1) the right to be represented by counsel and to claim any privilege to which the person or company is entitled.

85Except in accordance with section 17 of the Act, Section 16 prohibits disclosure, except to counsel, of: the nature or content of an order issued under section 11 of the Act; the name of any person examined or sought to be examined under section 13; any testimony given under section 13; any information obtained under section 13; the nature or content of any questions asked or demands for production of documents under section 13; or the fact that any document was produced under section 13.

86Testimony given under section 13 of the Act and all documents and other things obtained under that section relating to the investigation or examination that is the subject of the order are for the exclusive use of the Commission pursuant to subsection 16(2) of the Act.

87Section 17 of the Act permits disclosure or production of testimony given under section 13 of the Act in certain instances.

88Section 18 of the Act specifically indicates that testimony given under section 13 of the Act shall not be admitted in evidence against the person from whom the testimony was obtained in a prosecution for an offence under section 122 or in any other prosecution governed by the Provincial Offences Act, R.S.O. 1990, c. P.33, as amended.

89The results of the investigation cannot be disclosed to anyone except another securities regulator in the absence of an order by the Commission. Absent exceptional circumstances, the person required to give evidence must be given notice and an opportunity to be heard before such an order is made.

The legitimate expectations of the person being examined

90Section 11 investigations and section 13 examinations are a fact of life for persons trading in securities or registered in the securities industry. This procedure is only available if the OSC determines that an investigation is “expedient for the due administration of Ontario securities law, or the regulation of the capital markets in Ontario…”

91Accordingly, any person trading in securities or registered by the OSC would reasonably expect that their market activity could be investigated and that they could be asked about it.

92Persons subject to section 13 examinations can attend with counsel. Persons attending can later correct answers that they have given.

The choice of procedure

93The investigation and compelled examination procedure was chosen by the Legislature.

Conclusion concerning the Baker factors

94Cumulative consideration of the Baker factors leads to the same conclusion that this court came to in Gatti; namely that there is a low threshold of fairness at the investigative stage of Commission proceedings.

95The appellant Fiorillo’s objection to the sufficiency of notice concerning Staff’s section 11 investigation is not persuasive. Mr. Fiorillo had the right to attend his section 13 examination with counsel. Mr. Fiorillo had an opportunity after the fact to correct or explain or otherwise clarify any answers given during his examination.

96There was only one reference to a discrepancy between Mr. Fiorillo’s evidence at the hearing and his compelled testimony, found at paragraph 230 of the Merits Decision. That paragraph is as follows:

Furthermore, we do not find Fiorillo’s testimony credible that it was not possible he spoke to Agueci about EMC. When Fiorillo was confronted with his compelled examination, he reversed his position and stated that it is possible he and Agueci spoke about EMC after all. We note that Fiorillo bought EMC shares forty minutes after speaking with Agueci on May 15, 2007. GMP delivered a draft fairness opinion to the EMC special committee on May 15, 2007, which was then presented to the EMC board of directors by GMP employees whose travel had been arranged by Agueci.

97This reference does not suggest that Mr. Fiorillo’s evidence at his compelled examination was in error. Rather it suggests that his evidence at the hearing was incorrect.

The Commission’s ruling that Staff could use portions of Ms. Agueci’s compelled examination as part of its case is not wrong in law

98The appellant submits that the Commission’s Ruling with respect to the use that could be made of the section 13 compelled examination transcripts reflects an error in law.

99The appellant objects to the fact that Staff decided not to call Ms. Agueci and then were permitted to introduce portions of her compelled examination as part of their case. Mr. Fiorillo’s counsel was not present at Ms. Agueci’s compelled examination and therefore had no opportunity to cross-examine her during that examination.

100As indicated, Ms. Agueci was found to be the tipper. Ms. Agueci’s counsel would not undertake to call her as a witness. This resulted in Staff tendering excerpts of her compelled testimony. Ms. Agueci did not in fact testify. Mr. Fiorillo’s counsel objected because Staff did not tender Ms. Agueci’s evidence denying that she gave material non-public information to anyone.

101Ms. Agueci’s statements at her compelled examination were hearsay statements when tendered at the hearing on the merits of the allegations against her, except to the extent that they were tendered in connection with allegations that she misled Staff.

102Hearsay statements may be admitted pursuant to section 15 (1) of the Statutory Powers Procedures Act, R.S.O. 1990, c. S.22, which provides as follows:

15. (1) Subject to subsections (2) and (3), a tribunal may admit as evidence at a hearing, whether or not given or proven under oath or affirmation or admissible as evidence in a court, (a) any oral testimony; and (b) any document or other thing, relevant to the subject-matter of the proceeding and may act on such evidence, but the tribunal may exclude anything unduly repetitious.

103At paragraph 13 of his factum Mr. Fiorillo’s counsel takes the position that OSC Staff made a deliberate decision not to call Ms. Agueci and that as a result they could not cross examine her. This statement is not complete. If it could be demonstrated that Ms. Agueci was adverse or opposed in interest to Mr. Fiorillo, his counsel could have asked the Commission for permission to cross examine her even though she was his own witness. The fact is that Ms. Agueci was not adverse in interest to Mr. Fiorillo. At her compelled examination she denied tipping anyone and at the hearing she defended herself, albeit unsuccessfully, against the allegations.

104Ms. Agueci’s evidence at her compelled examination denying that she tipped anyone was tendered by Mr. Wing as part of his case. Alternatively, one of the appellants could have called Ms. Agueci, thereby giving the other appellants the opportunity to cross-examine her.

105Mr. Fiorillo’s counsel claims that Staff were able to “cherry pick portions of the transcript” of that examination. This claim relates to the evidence of Ms. Agueci that was read in at the end of Staff’s case, after Ms. Agueci’s counsel had declined to give an undertaking to call her to testify.

106I reject this submission.

107Counsel’s objection must be considered in context. I reproduce counsel’s position before the Commission in its entirety:

Ms. Snow: Good morning. On behalf of Fiorillo, we are taking no position on the vast majority of Staff’s proposed read-ins from Ms. Agueci’s days of transcripts.

However, there is, in our view, one critical omission from Staff’s proposed read-ins that ought properly to be put before the Panel. It was a matter that was identified by Ms. McLean so we did not re-raise it in an email.

In particular it is one question from the second day of Ms. Agueci’s examination. It’s Question 1088. Staff has declined to include this question as part of their read-ins, and, in our view, it goes to the heart of the matter.

So Question 1088 is:

“Okay. My next question to you is have you ever tipped or informed anyone of material information about a public company before that information was generally disclosed to the market, so through a press release or what have you?”

And Ms. Agueci’s answer is, “No.”

In our view that this is the crux of this entire— not the entire proceeding, but the bulk of the proceeding. In Mr. Price’s words, it contextualizes the matter. It’s direct evidence from Ms. Agueci, perhaps the only direct evidence from Ms. Agueci you will have on this particular issue, and it should form part of the record. I do not believe I can be clearer than that.

Subject to any questions that the Panel has, those are my submissions on the point.

108The Panel did not exclude Question 1088 of Ms. Agueci’s compelled evidence. Rather, the panel permitted Mr. Fiorillo and the other appellants to introduce excerpts of Ms. Agueci’s compelled testimony upon which any one of them wished to rely. Mr. Wing introduced Question 1088 and Ms. Agueci’s response as part of his case.

109At paragraph 43 of his factum, counsel for Mr. Fiorillo relies on Ms. Agueci’s Question 1088 denial that she ever tipped anyone. Paragraph 43 provides as follows:

In common with all the allegations, Fiorillo never disputed that he spoke on a regular basis with Agueci who was his friend. He had calls with her on a frequent basis over many years. Fiorillo’s direct evidence was that he did not receive any MNPI from Agueci. In her interview, Agueci also denied disclosing MNPI in respect of EMC (or any other security) to Fiorillo (which the Panel does not refer to for any of the three).… [Emphasis added]

110The Commission did not receive cherry picked portions of Ms. Agueci’s compelled examination. All portions of Ms. Agueci’s compelled examination upon which Staff or the appellants wished to rely were introduced into evidence.

The Commission did not fail to apply the normal rules of procedure to the use of the transcript of Ms. Agueci’s compelled examination

111Concerning the transcript of Ms. Agueci’s compelled examinations, Mr. Fiorillo and the other appellants also complain that it was not proper for the Commission “to then not apply the normal rules of procedure or exclude portions of that transcript that provides substantial assistance to Mr. Fiorillo…”

112As indicated, the Commission did not exclude the portions of the transcript upon which Mr. Fiorillo wished to rely. Accordingly, the remaining objection is that the Commission failed to “apply the normal rules of procedure” to it.

113The appellant Fiorillo’s position, which is also the position of the other appellants, is set out by the Commission in paragraphs 84 and 88 of its decision. Those paragraphs provide as follows:

84Furthermore, certain of the Respondents argue that it was improper for Staff to attempt to discredit Agueci’s compelled testimony, which states that she did not give material non-public information to anyone. Certain of the Respondents take the position that Agueci is to be considered Staff’s own witness by virtue of the fact that Staff tendered excerpts of her compelled testimony into evidence at the Merits Hearing. They rely on the decision in Walker which states: “Crown counsel is not entitled to call his own witness a liar and invite the jury to believe the very opposite of what the witness said.” (R. v. Walker, 1994 8725 (ON CA), [1994] O.J. No. 827 at para. 31 (“Walker”)). In response to those submissions, Staff argues that Staff did not tender into evidence the part of Agueci’s compelled testimony that contained the denial referred to by the Respondents. Rather, counsel for Wing filed that portion of the compelled testimony (Exhibit 1132-B at p. 237, Q. 1088). Staff also submits that the Walker decision addressed a criminal matter and may not be applicable in the circumstances of this administrative proceeding. Lastly, Staff submits that Walker can be distinguished from this case, where there is ample circumstantial evidence in this matter from which the Panel can draw the reasonable and logical conclusion that a tip was given in many instances and, therefore, there is a sufficient basis in the evidence to disbelieve Ms. Agueci's denial.

88As stated above, counsel for Fiorillo also takes the position that it was improper for Staff to attempt to discredit Agueci’s compelled testimony, in which she stated that she did not give material non-public information to anyone. He relies on the Walker decision to support the proposition that Staff is not entitled to call Agueci, its own witness, a liar and invite the Panel to believe the very opposite of what she said (Walker, supra at para. 31).

114I do not agree that Ms. Agueci was the Commission’s witness. Ms. Agueci participated in the hearing on the merits of this matter as a party who was responding to allegations that she had contravened the Securities Act. She was adverse in interest to Staff in this proceeding. Her counsel would not undertake to call her as a witness with the result that Staff were permitted to read in excerpts of her compelled examination.

115Even if one views Ms. Agueci as Staff's witness, the “normal rules of procedure” are set out in section 23 of the Ontario Evidence Act, R.S.O. 1990, c. E.23, which provides as follows:

23. A party producing a witness shall not be allowed to impeach his or her credit by general evidence of bad character, but the party may contradict the witness by other evidence, or, if the witness in the opinion of the judge or other person presiding proves adverse, such party may, by leave of the judge or other person presiding, prove that the witness made at some other time a statement inconsistent with his or her present testimony, but before such last-mentioned proof is given the circumstances of the proposed statement sufficient to designate the particular occasion shall be mentioned to the witness and the witness shall be asked whether or not he or she did make such statement. [Emphasis added]

116Section 23 permits a party to discredit its own witness in two ways: it can contradict the witness by other evidence and it can prove that the witness made at some other point in time a statement inconsistent with the witness’s present testimony. Typically, resort to this section has occurred in the context of a previous inconsistent statement, but the clear wording of the section permits the witness to be contradicted by other evidence. This is a rule that comes from common law, and is mentioned in passing in many decisions. It is specifically discussed in the BC Court of Appeal’s decision in Mayer v. Mayer Estate, 1993 842 (BC CA), [1993] 4 W.W.R. 546 at paras. 31-34 (BC C.A.)., where the court states:

31 The authors of The Law of Evidence in Canada (Toronto: Butterworths Canada Ltd., 1992) state at p. 838: At common law, it was well established that one's own witness could always be contradicted by other evidence, but not by general evidence of bad character.

32 As authority for that proposition reference is made to the decisions in R. v. Duckworth (1916), 1916 492 (ON CA), 26 C.C.C. 314, 37 O.L.R. 197 (C.A.), and Cariboo Observer v. Carson Truck Lines (1961), 1961 360 (BC CA), 32 D.L.R. (2d) 36, 37 W.W.R. 209 (B.C.C.A.).

33 In the Cariboo Observer case Sheppard J.A., speaking for the majority, said at p. 213 [W.W.R.]: A party is not precluded from calling evidence on a matter in issue by reason that it would contradict the evidence of another witness called by that party.

34 Indeed, at the trial in Skender v. Barker, supra, Bouck J. discussed the distinction between (1) the unfavourable witness, (2) the adverse witness, and (3) the hostile witness. With respect to the unfavourable witness Bouck J. said at p. 74: When a witness called by a party merely gives unfavourable answers to questions posed during examination-in-chief, that party may not cross-examine the witness but may still lead evidence in contradiction. This happens every day.

117This court, in Ontario (Ministry of Municipal Affairs & Housing) v. Ontario (Municipal Board), (2001) 144 O.A.C. 281 (Ont. Div. Ct.) said at para. 25: “S. 23 of the Evidence Act specifically permits a party to contradict his own witness "by other evidence" so long as that party does not ‘impeach his or her credit by general evidence of bad character.’”

118In addition, the “normal rules of procedure” to be applied by the Commission are also contained in section 15 of the Statutory Powers Procedure Act, which permits the admission of oral testimony and documents, whether or not they are admissible as evidence in a court, provided they are relevant to the subject matter of the proceeding. The excerpts of Ms. Agueci’s testimony including Question 1088 were relevant to the OSC Merits Hearing and therefore admissible pursuant to section 15. And that is exactly what happened.

119Finally, the “normal rules of procedure” include the fact that the Commission has the power to determine its own procedures and practices. See section 25.0.1 of the Statutory Powers Procedure Act.

120The Commission was entitled to deal with the admission of portions of Ms. Agueci’s compelled testimony in the manner in which it did. No portion of Ms. Agueci’s compelled testimony, which any party wished admitted, was excluded. Finally, the Staff was permitted to contradict her by other evidence. As a result, there was no unfairness to any party resulting from the Commission’s decision to deal with Ms. Agueci’s compelled testimony in the manner in which it did.

No unfairness resulted from the fact that the Notice of Hearing asserted that a “trading ring” existed but no evidence was ever called to support the allegation

121The appellant Fiorillo outlined this objection as an illustration of the unfairness of the Merits Hearing. The appellant claims that as a result of the allegation in the Notice of Hearing that there was a “trading ring”, which was not supported by evidence, the Commission heard the charges against all respondents together. In addition, the Commission heard the argument from the Staff that similar fact evidence ought to be admitted.

122No unfairness resulted from this procedure.

123The Commission rejected Staff’s request that evidence and findings in respect of one allegation be used to support the inference that Ms. Agueci tipped the other persons named in the Notice of Allegations.

124The Commission rejected Staff’s request that similar act evidence could also be considered among the various persons responding to allegations in respect of a particular securities issuer.

125It is true that the allegations against all persons responding to the notice of allegation were heard together. However, it is also true that the appellants did not move to sever allegations in the Notice of Hearing.

126Finally, the “trading ring” allegation did not result in the admission of similar act evidence – erroneously or otherwise.

127I decline to give effect to this submission.

No unfairness resulted from the fact that the Panel permitted a Staff member to speak to documents in which she had no involvement.

128Mr. Fiorillo’s complaint about this is contrary to his position at the Merits Hearing. At the Merits Hearing counsel for Mr. Fiorillo took the position that the documents could go in through Staff’s investigator, subject to objection on a document-by-document basis, and that failure to make objection at that time would foreclose future objection. See Hearing Transcript October 1, 2013, p. 82 adopting submissions at p. 77-80.

129As a result, Mr. Fiorillo cannot now complain about this procedure

The Commission’s inference that material non-public information passed from Ms. Agueci to Mr. Fiorillo was an inference available on the totality of the evidence

130The appellant Fiorillo not only objects to the process, but he also objects to the decision. The appellant’s objection to the decision is summarized in paragraph 9 of his factum. He submits that “… The decision is simply speculation made worse by illogic and the total lack of objective probative evidence or factors to base the speculation upon.”

131I do not accept this submission.

132The inferences drawn from a fact or a group of facts must be reasonable and logical. See R. v. Morrissey, 1995 3498 (ON CA), [1995] 22 O.R. (3d) 514 at para. 52 (C.A.).

133Applying a deferential standard to this principle means that this court must determine whether there are facts or groups of facts from which the passage of material nonpublic information from Ms. Agueci to Mr. Fiorillo could be inferred. Substituting this court’s view of the appropriateness of drawing such an inference for the Commission’s view is fundamentally inconsistent with a reasonableness standard of review.

134This is illustrated by considering the finding that material nonpublic information had passed from Ms. Agueci to Mr. Fiorillo and that Mr. Fiorillo had traded in shares of EMC before that information was generally disclosed.

EMC

135A review of the Commission’s reasons indicates that it based its finding that Mr. Fiorillo traded in EMC shares while in possession of material nonpublic information provided by Ms. Agueci on the following evidence:

• The proximity of telephone calls between Ms. Agueci and Mr. Fiorillo and Fiorillo’s trades in EMC. For example, Fiorillo bought EMC shares 40 minutes after speaking with Agueci on May 15, 2007 – the same day that Agueci’s employer was delivering its fairness opinion to the EMC special committee.

• The fact that Mr. Fiorillo testified that he probably read an article about EMC on March 14, 2007, but did not begin purchasing stock until May 2007, shortly after speaking with Agueci.

• The fact that Mr. Fiorillo’s purchases of EMC stock ($613,469) were among his largest purchases in a 14-month period.

• Mr. Fiorillo’s attempts to downplay the extent of his relationship with Ms. Agueci.

• The fact that Mr. Fiorillo in his direct evidence denied speaking to Agueci about EMC, but then admitted that it was possible he talked to her about the stock when confronted with portions of his compelled examination to that effect.

• The fact that Mr. Fiorillo’s percentage return on his investment was substantial.

• The fact that Mr. Fiorillo testified that he would not have purchased EMC stock if it suddenly went up in value and yet began purchasing the stock at $14.95 and continued purchasing it up to a price of $16.35.

• The fact that Mr. Fiorillo’s purchases were not solicited by his investment advisor.

136A review of the commission’s reasons also indicates that it made its finding that Mr. Fiorillo traded in EMC shares while in possession of material nonpublic information provided by Ms. Agueci after considering the following evidence, which militated against that finding:

• Mr. Fiorillo traded so frequently that it was quite possible that calls with Ms. Agueci were in close proximity to trades with which the Commission was concerned and trades with which the Commission was not concerned.

• The fact that purchases were a small percentage of Mr. Fiorillo’s net worth. The Commission indicated that it disregarded this fact because Mr. Fiorillo’s net worth was between $33 and $100 million, which meant that most if not all of his purchases were a small percentage of his net worth.

• The trades were not necessarily uncharacteristic or unusually risky.

• Mr. Fiorillo was a prolific trader.

• Mr. Fiorillo enjoyed a good reputation.

137After considering the totality of the evidence, the Commission decided to draw the inference that Ms. Agueci gave Mr. Fiorillo material nonpublic information about EMC and that he purchased shares in that stock with that knowledge and before that knowledge was generally known.

138The Commission did not infer insider trading only from the opportunity to illegally access material nonpublic information. The Commission’s conclusion that material nonpublic information passed from Ms. Agueci to Mr. Fiorillo was based on the Commission’s assessment of the totality of the evidence, including the evidence referred to in these reasons.

139If we were to substitute our view of this evidence for the Commission’s view of it, then this court would be deciding whether Ms. Agueci passed material nonpublic information to Mr. Fiorillo prior to him purchasing EMC shares. This Court would be trying that factual allegation and behaving in a manner inconsistent with the deferential standard of review that this Court in earlier decisions decided to apply to insider trading decisions of the Commission.

HudBay Minerals Inc. & Coalcorp Mining Inc.

140A similar analysis can be applied to the Commission’s decision with respect to these two reporting issuers. The evidence considered by the Commission in respect of these two issuers is discussed in the part of these reasons dealing with burden of proof and will not be repeated here.

Contextual evidence was not ignored

141The appellant complains that contextual evidence was ignored. I reject this suggestion.

142The appellant references the fact that the trading occurred in sectors that experienced above normal volatility during the relevant time period and that volatile sectors generate winners and losers. The Commission is a tribunal with specialized knowledge of financial markets. It referenced in its reasons that at the relevant time Mr. Fiorillo was investing in a volatile sector of the market. For example, the Commission referred at paragraph 591 of its Merits Decision to Mr. Fiorillo’s explanation of his sale of Coalcorp shares on February 1, 2008; namely that it was a volatile sector and therefore he took his profit “when he got it”. Deference should be shown to the Commission’s assessment of whether the appellant’s behaviour in the market resulted from the fact that he was trading on insider information or from the fact that he was trading in a volatile sector of the market. There is no basis upon which this court could conclude that the Commission did not understand or appreciate evidence of market behaviour.

143The appellant complains that the Commission failed to take into account that due to the extent of his trading and the number of calls that passed between him and Ms. Agueci, many trades other than trades in the impugned stock could have occurred in close proximity to his calls with Ms. Agueci.

144The Commission specifically referenced this fact at paragraph 231 of the Merits Decision. Specifically, the Commission stated:

We accept that Fiorillo was a frequent trader and it is more than likely that he made trades in stocks other than the impugned trades that occurred in close proximity to calls with Agueci.

145The appellant argues that there is an in internal inconsistency in the Commission’s logic because, despite this conclusion, it attaches significance to the proximity of calls in concluding that Mr. Fiorillo engaged in insider trading. There is no inconsistency in this. At paragraph 231 the Commission simply acknowledges that the persuasiveness of the fact that the impugned trading occurred closely in time to telephone calls from Ms. Agueci is tempered by the fact that there was also unobjectionable trading, close in time to telephone calls with Ms. Agueci.

146As indicated, the Commission did not base its decision solely on the fact that impugned trades occurred in close proximity to calls with Ms. Agueci. The proximity of calls to the impugned trades was one item of evidence included in the totality of evidence upon which the Commission made its decision.

147The Commission did not ignore contextual evidence. Rather it drew inferences from its assessment of the evidence with which the appellant disagrees and with respect to which this court ought not to interfere.

The Commission is not required to adhere to the “approach” in Walton and Azeff to the difficulty of proving insider trading

148The appellant argues that the Commission failed to properly appreciate and perform the judicial function. It submits that the decisions by a differently chaired Commission panel in Re Azeff, (2015) O.S.C.B. 2983 (“Azeff”), and by the Alberta Court of Appeal in Walton v. Alberta (Securities Commission), 2014 ABCA 273, 580 AR 218 (“Walton”), are examples of a properly performed judicial function in insider trading cases.

149There is no rigid “approach” in the Commission’s decision in Azeff or in the Alberta Court of Appeal’s decision in Walton.

150In Azeff, the following appears at paragraphs 44 and 45:

44The Commission determined in the circumstances of the Suman case, that:

Knowledge of an undisclosed material fact may be properly inferred based on circumstantial evidence that includes proof of the ability and opportunity to acquire the information combined with evidence of well-timed, highly uncharacteristic, risky and highly profitable trades.

45A variety of types of circumstantial evidence can be the indicia of insider trading or tipping: (a) unusual trading patterns; (b) a timely transaction in the stock shortly before a significant public announcement; (c) a first time purchase of the stock; (d) an abnormal concentration of trading by one brokerage firm or with one or a few brokers; and (e) a trade that represents a very significant percentage of the particular portfolio. [Citations omitted.]

151These paragraphs do not describe a rigid approach. The Commission in Azeff recognized that the drawing of inferences is a case specific exercise. Specifically, at paragraph 47 the following appears:

The indicators listed in the paragraphs above are not exhaustive. Nor is it necessary that all indicia be established in every case. Insider trading and tipping cases are established by a mosaic of circumstantial evidence which, when considered as a whole, leads to the inference that it is more likely than not that the trader, tipper or tippee possessed or communicated material nonpublic information.

152Similarly, in Walton the Alberta Court of Appeal did not lay down such a rigid approach.

153The statement by that court in paragraph 29 of its reasons is as follows:

It is possible to draw an inference of insider trading from unusual or anomalous trading patterns, particularly "well-timed, highly uncharacteristic, risky and highly profitable trades".

154Obviously, stating that an inference of insider trading can be drawn from such trading patterns is quite different than saying that an inference of insider trading cannot be drawn in the absence of such trading patterns.

155These decisions do not set down any principle that is extended or departed from by the decision under appeal. These decisions do not change in any way the case specific nature of inquiries into insider trading and tipping. If they did, I would decline to follow them.

156Inferential fact finding is not formula friendly.

157In this case, the facts upon which the Commission relied to draw the inference that Ms. Agueci communicated material nonpublic information to Mr. Fiorillo are firmly established in the evidence. The facts upon which that inference was drawn were not themselves speculative.

158The Commission decided to draw the inference despite the absence of uncharacteristically risky trading. This Court has never said that uncharacteristically risky trading is a condition precedent to a finding of insider trading or tipping.

The Commission did not reverse the onus of proof

159The appellant complains that the Commission put the burden of proof on him.

160I am satisfied that the Commission did not reverse the burden of proof.

161Mr. Fiorillo testified before the Commission. Among other things, he denied trading in the shares of EMC, HudBay and Coalcorp Inc. while in the possession of material nonpublic information. He denied receiving material nonpublic information from Ms. Agueci. The Commission did not accept his evidence. Accordingly, it was incumbent upon the Commission to explain its view of his evidence.

162As indicated, insider trading was found in respect of three issuers. At paragraph 84, in footnote 141 of his factum, the appellant sets out references to the Commission’s decision which he claims demonstrate that the insider trader finding in respect of each issuer resulted from a reversal of the burden of proof.

163I propose to deal with this submission by considering it in respect of each reporting issuer.

EMC

164The Commission dealt with Mr. Fiorillo’s evidence and trading in EMC in paragraph 228-242 of its Merits Decision. A consideration of each of those paragraphs demonstrates that the burden of proof was not reversed.

165Paragraph 228 contrasts Mr. Fiorillo’s trading activity in that stock with telephone calls between him and Ms. Agueci around the same time.

166In paragraph 229 the Commission rejects what it finds to be Mr. Fiorillo’s attempts to “downplay the extent of his relationship with Ms. Agueci.” It refers to the fact that during his examination in chief he called her a chatterbox and almost a pest, and then on cross examination admitted to returning her calls on Sunday and inviting her for drinks, dinners, and the social gatherings he hosted.

167In paragraph 230 the Commission rejects Mr. Fiorillo’s evidence denying that he spoke to Ms. Agueci about EMC.

168At paragraph 231 the Commission accepts Mr. Fiorillo’s evidence that he was a frequent trader and that it was more likely than not that he made trades in stocks other than the impugned trades in close proximity to calls with Ms. Agueci.

169In paragraph 232 the Commission considers Mr. Fiorillo’s purchases of $613,469 worth of EMC shares and explains how it views the significance of this purchase in relation to Mr. Fiorillo’s trading and overall net worth.

170In paragraph 233 the Commission accepts Mr. Fiorillo’s assertion that for him trades in EMC shares were not necessarily uncharacteristic or unusually risky.

171At paragraph 234 the Commission points out that the purchase of EMC shares was not suggested by Mr. Fiorillo’s investment advisor.

172Paragraph 235 explains why the Commission declined to attach any significance to Mr. Fiorillo’s evidence that during the relevant period the uranium sector was “hot”.

173Paragraphs 236 and 238 explain how the Commission viewed Mr. Fiorillo’s evidence that he read about the investment industry and spoke to many persons involved in the industry about investing.

174In paragraph 237 the Commission explains how it viewed evidence of Mr. Fiorillo’s good character.

175Paragraph 239 deals with Ms. Agueci’s submission that the evidence did not support a conclusion that she provided Mr. Fiorillo with inside information about EMC but rather only supported a conclusion that she recommended the stock to him. In this paragraph the Commission explains why it rejected Ms. Agueci’s submission; namely that Mr. Fiorillo, as an experienced and knowledgeable market participant, would not invest in stocks simply because Ms. Agueci recommended them.

176Mr. Fiorillo characterizes the Commission’s conclusion in paragraph 239 as a speculation. It is not. The finding that Mr. Fiorillo was an experienced and knowledgeable market participant is consistent with Mr. Fiorillo’s portrayal of himself. The inference that an experienced and knowledgeable market participant would require information before he or she would commit hundreds of thousands of dollars to an investment is a matter of common sense in addition to being a conclusion about investor behaviour by a tribunal with specialized knowledge of financial market behaviour.

177Finally, paragraph 240 of the Merits Decision provides as follows:

While we accept Fiorillo’s evidence that he traded frequently, watched the market avidly and spoke to many people about stocks, we do not find Fiorillo’s explanations of why he bought EMC shares to be in accord with the preponderance of the evidence. They do not sufficiently explain the timing of his contact with Agueci and the proximity to his trading.

178When I consider paragraph 240 in the context of the preceding paragraphs, I come to the conclusion that it does not shift the burden of proof but rather sums up why the Commission found Mr. Fiorillo’s explanation of his trading inadequate.

179Paragraphs 241-242 set out the Commission’s conclusions “based on the combined weight of the evidence” concerning the allegation that Mr. Fiorillo engaged in insider trading of EMC shares.

HudBay

180The Commission dealt with Mr. Fiorillo’s evidence and trading in HudBay shares and options in paragraph 441-466 of the Merits Decision.

181Paragraphs 441-446, 455, 456 and 460 contrast Mr. Fiorillo’s trading in shares and options of HudBay with his telephone calls with Ms. Agueci.

182Paragraph 447 explains why the Commission attached little importance to a one-month gap between the time Ms. Agueci learned of the HudBay material nonpublic information and the time when the Commission found it to have been communicated by Ms. Agueci to Mr. Fiorillo.

183Paragraph 448 sets out the fact that Ms. Agueci had access to material nonpublic information during the relevant period.

184Paragraphs 449-451 deal with Mr. Fiorillo’s purchases of HudBay shares, his assertion that the purchases were not uncharacteristic or unusually risky and a comparison of his option trading in HudBay with his share trading in HudBay.

185Paragraphs 452-454 set out the published positive information about HudBay and comment on the fact that Mr. Fiorillo did not buy the stock despite the positive news about it but rather purchased it some months later within 20 minutes of a telephone call with Ms. Agueci.

186Paragraph 457 explains why the Commission attaches little importance to purchases of HudBay shares 6 to 14 months after the relevant period.

187Paragraph 458 explains that the withdrawal of the proposal to buy HudBay affected Mr. Fiorillo’s profits from trading in the stock.

188Paragraph 459 repeats the fact that the Commission found that Mr. Fiorillo attempted to downplay his relationship with Ms. Agueci and only admitted the extent of it on cross-examination.

189Paragraph 461 notes that Mr. Fiorillo’s purchases of HudBay were not on the basis of advice that he received from his investment advisor.

190Paragraph 462 explains the use that the Commission made or declined to make of the evidence of Mr. Fiorillo’s good character.

191Paragraph 463 acknowledges Ms. Agueci’s submission that the available evidence would at most support the conclusion that she recommended stocks such as HudBay to Mr. Fiorillo but did not support the conclusion that she communicated material nonpublic information about HudBay to him.

192Finally, at paragraph 464 the Commission states as follows:

While we accept Fiorillo’s evidence that he traded frequently, watched the market avidly and spoke to many people about stocks, we do not find Fiorillo’s explanation of why and when he bought HudBay shares is in accord with the preponderance of the evidence. His explanation does not explain the timing of his contact with Agueci, nor the proximity to his trading; this evidence supports the inference that Agueci informed Fiorillo of the HudBay Material Facts and that Fiorillo purchased HudBay securities with knowledge of the HudBay Material Facts between August 20 and September 18, 2007.

193Paragraph 464 sums up the Commission’s conclusions concerning Mr. Fiorillo’s evidence. The commission accepted Mr. Fiorillo’s evidence that he traded frequently, watched the market avidly and spoke to many people about stocks. However, the Commission did not find that Mr. Fiorillo’s explanation of why and when he bought HudBay shares was in accord with the preponderance of evidence. This paragraph does not shift the burden of proof. Rather, it explains why the Commission rejected Mr. Fiorillo’s innocent explanation for his trading in HudBay shares and options.

194When paragraph 464 is considered in the context of the preceding paragraphs, I am satisfied that it does not shift the burden of proof to Mr. Fiorillo but rather explains how the Commission dealt with his evidence concerning his trading in HudBay shares and options and why ultimately it did not accept his evidence denying that he traded in HudBay shares and options while in the possession of material nonpublic information that he had received for Ms. Agueci.

195Paragraphs 465-466 set out the Commission’s conclusions concerning the allegation that Mr. Fiorillo traded in HudBay shares and options while in possession of material nonpublic information that he had received from Ms. Agueci.

Coalcorp Mining Inc.

196The Commission dealt with Mr. Fiorillo’s evidence concerning his trading in Coalcorp Inc. shares in paragraph 584-597 of the Merits Decision.

197Paragraphs 584-587 contrast Mr. Fiorillo’s trading in Coalcorp shares and his contacts with Ms. Agueci.

198In paragraph 588 the Commission again references Mr. Fiorillo’s submission that the impugned trades were a small percentage of his income and net worth. The Commission explains its view that because his net worth was between $33 million and $100 million, most, if not all, of his purchases would likely be a small percentage of his net worth. The Commission also notes that the timeframe for the Coalcorp transaction was compressed; namely that there were only two trading days to acquire Coalcorp shares and take advantage of the information that the Pala Group had made a proposal.

199Paragraph 589 accepts Mr. Fiorillo’s submissions that his purchases of Coalcorp shares ($98,730) were not uncharacteristically large or risky. However, it also notes that the impugned trades yielded a return of almost 39% within two days.

200In paragraph 590, the Commission accepts Mr. Fiorillo’s evidence that he was a prolific trader. The Commission then describes why in its view this does not explain his trading in Coalcorp shares during the relevant period. Similarly, in paragraph 591 the Commission describes why it rejected Mr. Fiorillo’s attempt to explain his decision to purchase Coalcorp stock on January 30, 2008 and to sell it on February 1, 2008.

201Paragraph 592 of the Commission’s decision provides as follows:

Fiorillo also submits that there was chatter in the market about Coalcorp and suggests that the Panel consider the email sent January 30, 2008 at 3:47 p.m. from Baker at GMP’s Montreal office to McBurney, which was noted in paragraph [561] above. However, we have received no evidence that Fiorillo ever saw that internal GMP email and Fiorillo did not provide evidence of any news of rumours surrounding Coalcorp in early 2008. In his response to other allegations about other impugned stock transactions, Fiorillo was able to tender evidence of news or speculation about the issuers, yet in relation to Coalcorp he provided no support for his assertion. We find that Fiorillo’s explanation of why he bought Coalcorp is not in accord with the preponderance of the evidence. In our view, Fiorillo’s explanation does not sufficiently explain or account for the facts of the timing of his contact with Agueci and the proximity to his purchases of Coalcorp shares.

202Paragraph 592, when considered in the context of the preceding, does not shift the burden of proof to Mr. Fiorillo. Paragraph 592 explains how the Commission dealt with Mr. Fiorillo’s denial that he traded in shares of Coalcorp while in possession of material nonpublic information provided by Ms. Agueci. It points out why the Commission rejected the explanation for his market behaviour which he volunteered in his evidence.

203For the sake of completeness, in paragraph 593, the Commission explains how it views evidence of Mr. Fiorillo’s good character. In paragraph 594 the Commission repeats its observation that Mr. Fiorillo in his evidence attempted to downplay his relationship with Ms. Agueci.

204In paragraph 595 the Commission repeats Ms. Agueci’s assertion that the evidence could support the conclusion that she recommended Coalcorp to Mr. Fiorillo but not that she passed on material nonpublic information about it to him.

205Finally, in paragraphs 596 and 597 the Commission sets out that it has concluded “based on the combined weight of the evidence” that Mr. Fiorillo traded in shares of Coalcorp while in possession of material nonpublic information provided by Ms. Agueci.

Conclusion Concerning the burden of proof

206I am satisfied that when the reasons of the Commission are read as a whole, and paragraphs 240, 464 and 592 are read in context, that the Commission did not shift the burden of proof from Staff to Mr. Fiorillo during the course of the hearing.

The Commission’s findings concerning Mr. Fiorillo’s trades in Nu Energy Uranium Corporation are not inconsistent with its findings of insider trading by Mr. Fiorillo

207The appellant Fiorillo submits that the Commission failed to consider the implication of its finding that Mr. Fiorillo’s trades in Nu Energy Uranium Corporation (Nu Energy) were not based on material nonpublic information provided by Ms. Agueci. There were eight phone calls between Mr. Fiorillo and Ms. Agueci in proximity to those trades. The appellant submits that this indicates that proximity of phone calls was not probative of anything and affects the Commission’s reliance on it when considering insider trading in respect of the other reporting issuers.

208There is no merit in this submission.

209At paragraph 167 of the Merits Decision, the Commission determines that there is insufficient evidence to prove that Ms. Agueci possessed material nonpublic information about Nu Energy. In the absence of such a finding, evidence of telephone contacts or other contacts between Ms. Agueci and Mr. Fiorillo or any of the other appellants could not lead to a conclusion that Ms. Agueci passed material nonpublic information about Nu Energy. Ms. Agueci could not disclose what she did not know.

210With respect to the other reporting issuers with which we are concerned, the Commission made findings that Ms. Agueci was in possession of material nonpublic information during the relevant period. Her telephone contacts with Mr. Fiorillo when he was trading in those reporting issuers occurred in a different factual context; namely one in which they could support a finding of insider trading.

211In addition, the Commission specifically comments on the fact that Mr. Fiorillo likely traded in stocks other than the impugned trades in close proximity to calls with Ms. Agueci. The Commission considered this evidence when it was assessing the totality of the evidence. See for example Paragraph 231 of the Merits Decision.

212The Commission’s findings concerning Mr. Fiorillo’s trades in Nu Energy are not inconsistent with its findings of insider trading by Mr. Fiorillo in respect of EMC, HudBay and Coalcorp Mining Inc.

Conclusion concerning Mr. Fiorillo’s appeal of the Merits decision

213In conclusion, there is no merit in any of the grounds of appeal advanced by Mr. Fiorillo and as a result, his appeal against the findings of insider trading is dismissed.

Mr. Fiorillo’s appeal against the sanctions imposed by the Commission is dismissed

214Mr. Fiorillo appeals the 15-year trading ban. It is his position that due to his age, approximately 69 years, this is effectively a lifetime prohibition and wholly disproportionate to his misconduct.

215In Part III of the Sanctions Decision, the Commission correctly sets out the law on sanctions.

216At paragraph 48 of its Sanctions Decision, the Commission sets out the sanctioning factors specific to Mr. Fiorillo. At paragraph 49, the Commission, among other things, acknowledges the reputational loss experienced by Mr. Fiorillo after a long career in the securities industry. At paragraph 50, the Commission acknowledges that Mr. Fiorillo engaged in fewer violations of the Act than the other appellants.

217At paragraph 53 the Commission concludes that despite Mr. Fiorillo’s age, a 15-year prohibition is necessary to protect the public and serve the purposes of general and specific deterrence. This conclusion falls within the range of outcomes available to the Commission, given its findings. In addition, the trading prohibition has conditions attached to it for the purpose of minimizing its immediate impact on Mr. Fiorillo. The Commission also permitted Mr. Fiorillo to retain a registered dealer to manage his investments.

218Finally, the Commission ordered Mr. Fiorillo to disgorge the amount he obtained as a result of his insider trading and ordered him to pay administrative penalties.

219The Commission found Mr. Fiorillo to be an experienced market participant and, of all the individuals proceeded against, the most active in the marketplace. The Commission is a specialized tribunal charged by the Legislature with the responsibility to both protect capital markets and foster fair capital markets. The Commission views insider trading as a serious matter. See Re M.C.J.C. Holdings Inc., (2002), 25 O.S.C.B. 1133 at para. 14. There is no error in the Commission’s statement of the law on sanctions, nor is there any error in principle in its application of that law to Mr. Fiorillo. As a result, deference must be shown to the Commission’s determination of what is necessary to achieve the goals of specific and general deterrence, as well as the protection of the public. See Donnini v. Ontario Securities Commission, (2005) 2005 1622 (ON CA), 76 O.R. (3d) 43 at para.54 (C.A.) [Donnini].

220There is no basis for interfering with the Commission’s sanctions decision concerning Mr. Fiorillo, and his appeal from that aspect of the decision is dismissed.

The appeal of Dennis Wing

221Dennis Wing appeals the Ontario Securities Commission decisions dated February 11 and June 24, 2015. The Commission determined that he purchased shares of four reporting issuers (EMC, HudBay and Northern/Median) while in possession of material, non-public information received from Eda Marie Agueci and imposed sanctions on him for doing so.

222Mr. Wing also appeals the Commission’s orders of disgorgement, administrative penalties and costs.

223Mr. Wing does not appeal the Commission’s findings that he misled Staff and the sanctions imposed for that conduct.

224Mr. Wing worked at First Marathon beginning in 1981. He later became the Chief Compliance Officer for First Marathon’s International Operations and held that position for over 15 years. Subsequently, he became the Chairman of First Marathon International; a position he held for approximately 20 years.

225Mr. Wing and Ms. Agueci had worked together at First Marathon prior to 2002, were friends for some time and during the relevant period had an on-and-off romantic relationship.

226From 2007 through 2011, Mr. Wing was a resident of Toronto, Ontario and the President, Chief Executive Officer and Director of Fort House Inc. (Fort House), an investment dealer registered with the OSC. During the relevant period Mr. Wing was the Compliance Officer and the Ultimate Designated Person for Fort House.

227Mr. Wing was a Fellow of the Canadian Securities Institute.

228Mr. Wing was registered with the Commission in various categories during the relevant period. Such registrations ended on January 31, 2012 when Fort House was suspended.

229Pollen Services Limited (Pollen) is a company incorporated in the British Virgin Islands in 2003 which is wholly owned by The Honey Trust. The Honey Trust was set up by the appellant Wing in the British Virgin Islands. The assets of The Honey Trust included shares of Pollen. Pollen’s assets included a trading account, opened by Mr. Wing in 2003 in Switzerland at Socièté Générale Private or SG Private. The Pollen SG Account traded through subaccounts, one of which was at Fort House Inc. – an investment dealer registered with the Commission from January 2005 to January 2012. Dennis Wing had sole signing authority and trading authority over the Pollen SG Account. Mr. Wing’s two sons were the beneficiaries of the Honey Trust.

The OSC found the following concerning the appellant Wing:

EMC Findings

230The Commission found the following occurred between May 8 and 18, 2007:

• EMC was a "reporting issuer" within the meaning of the Act;

• as an employee of GMP, Ms. Agueci was a person in a special relationship with EMC within the meaning of subsection 76(5) (c) of the Act;

• in her capacity as an employee of GMP, Ms. Agueci became aware of facts that would reasonably be expected to have a significant effect on the market price or value of the EMC securities and were therefore "material facts" with respect to EMC, within the meaning of the Act (EMC Material Facts);

• Ms. Agueci informed Mr. Wing and Pollen, through Mr. Wing, other than in the necessary course of business, of the EMC Material Facts before they had been generally disclosed, contrary to subsection 76(2) of the Act and contrary to the public interest and section 127(1) of the Act;

• Mr. Wing and Pollen, through Mr. Wing, learned of the EMC Material Facts from Agueci, and knew or ought reasonably to have known that Agueci was a person in a special relationship with EMC and, as a result, Mr. Wing and Pollen through Mr. Wing were a person and a company in a special relationship with EMC within the meaning of subsection 76(5)(e) of the Act;

• Mr. Wing and Pollen, through Mr. Wing, purchased EMC securities with knowledge of the EMC Material Facts that had not been generally disclosed, contrary to subsection 76(1) of the Act and contrary to the public interest and section 127(1) of the Act;

• Mr. Wing authorized, permitted or acquiesced in Pollen’s non-compliance with Ontario securities law in respect of the purchases of EMC shares, such that Mr. Wing is deemed to also have not complied with Ontario securities law, pursuant to section 129.2 of the Act.

HudBay Findings

231The OSC found the following occurred between July 17, 2007 and September 18, 2007:

• HudBay was a "reporting issuer" within the meaning of the Act;

• as an employee of GMP, Ms. Agueci was a person in a special relationship with HudBay within the meaning of subsection 76(5)(c) of the Act;

• in her capacity as an employee of GMP, Ms. Agueci became aware of facts that would reasonably be expected to have a significant effect on the market price or value of the HudBay securities and were therefore "material facts" with respect to HudBay, within the meaning of the Act (HudBay Material Facts);

• Ms. Agueci informed Mr. Wing and Pollen, through Mr. Wing, other than in the necessary course of business, of the HudBay Material Facts before they had been generally disclosed, contrary to subsection 76(2) of the Act and contrary to the public interest and section 127(1) of the Act;

• Mr. Wing and Pollen, through Mr. Wing, learned of the HudBay Material Facts from Ms. Agueci, and knew or ought reasonably to have known that Ms. Agueci was a person in a special relationship with HudBay and, as a result, were a person and a company in a special relationship with HudBay within the meaning of subsection 76(5)(e) of the Act;

• based on the foregoing, Mr. Wing and Pollen, through Mr. Wing, purchased HudBay securities with knowledge of the HudBay Material Facts that had not been generally disclosed, contrary to subsection 76(1) of the Act and contrary to the public interest and section 127(1) of the Act;

• Mr. Wing authorized, permitted or acquiesced in Pollen’s non-compliance with Ontario securities law in respect of the purchases of HudBay shares, such that Mr. Wing is deemed to also have not complied with Ontario securities law, pursuant to section 129.2 of the Act.

Northern Orion Resources Inc. and Meridian Gold Inc. Findings

232The OSC found the following occurred between May 28, 2007 and June 18, 2007:

• Northern and Meridian were "reporting issuers" within the meaning of the Act;

• as an employee of GMP, Ms. Agueci was a person in a special relationship with Northern and Meridian within the meaning of subsection 76(5)(c) of the Act;

• in her capacity as an employee of GMP, Ms. Agueci became aware of facts that would reasonably be expected to have a significant effect on the market price or value of Northern and Meridian securities and were therefore "material facts" with respect to HudBay, within the meaning of the Act (Northern/Meridian Material Facts);

• Ms. Agueci informed Pollen, through Mr. Wing, other than in the necessary course of business, of the Northern/Meridian Material Facts before they had been generally disclosed, contrary to subsection 76(2) of the Act and contrary to the public interest and section 127(1) of the Act;

• Pollen, through Mr. Wing, learned of the Northern/Meridian Material Facts from Ms. Agueci, and knew or ought reasonably to have known that Ms. Agueci was a person in a special relationship with Northern and Meridian and, as a result, was a company in a special relationship with Northern and Meridian within the meaning of subsection 76(5)(e) of the Act;

• based on the foregoing, Pollen, through Mr. Wing, purchased Northern and Meridian securities with knowledge of the Northern/Meridian Material Facts that had not been generally disclosed, contrary to subsection 76(1) of the Act and contrary to the public interest and section 127(1) of the Act;

• Mr. Wing authorized, permitted or acquiesced in Pollen’s non-compliance with Ontario securities law in respect of the purchases of Northern and Meridian shares, such that Mr. Wing is deemed to also have not complied with Ontario Securities law, pursuant to section 129.2 of the Act.

The fundamental factual question

233The fundamental factual question is whether Mr. Wing’s personal trades and Pollen’s trades in EMC, HudBay and Pollen’s trades in Northern Orion Resources Inc. and Meridian Gold Inc. occurred when Mr. Wing and Pollen, through Mr. Wing, were in possession of material nonpublic information provided by Ms. Agueci.

234Mr. Wing complains that the Commission drew this inference on unfounded circumstantial evidence and in the face of direct evidence to the contrary and equally plausible explanations for Mr. Wing’s activities.

235This submission is not borne out by consideration of the Commission’s reasons. I propose to consider the Commission’s reasoning in respect of each reporting issuer.

EMC

236The Commission explains its decision with regard to this reporting issuer in paragraphs 202-220.

237Paragraphs 202 – 203 contrast Mr. Wing and Pollen’s purchases of EMC shares and Mr. Wing’s contacts with Ms. Agueci.

238Paragraph 204 finds that in two days Mr. Wing on his own account and on the account of Pollen Services Limited purchased $1.5 million worth of shares of EMC. The Commission found this amount to be significant. The Commission discounted Mr. Wing’s claim that he made a purchase of another issuer’s shares that was even larger than his EMC purchase through his personal account.

239In paragraph 205 the Commission finds that Mr. Wing and Pollen had not purchased EMC before the impugned trading. The Commission acknowledges that the impugned trading was not uncharacteristic or unusually risky for Mr. Wing or Pollen. It also finds that the trades were highly profitable and resulted in 16% profit for Pollen and a 23% profit for Mr. Wing in a three-week period. The Commission also concluded from the manner in which the shares of EMC were purchased that Mr. Wing was in a rush to purchase the shares.

240In paragraph 206 the Commission takes into account that Pollen, through Mr. Wing, at the same time as Mr. Wing and Pollen were purchasing shares in EMC, shorted stock in SXR Uranium One – the company purchasing EMC. The Commission found that the identity of the purchaser of EMC was not publicly known at the time that Mr. Mr. Wing shorted the stock. The Commission found that shorting the acquirer SXR Uranium One was corroborative of the inference that Mr. Wing was in possession of material non-public information about EMC.

241In paragraph 207 the Commission acknowledges evidence that the uranium market was “hot” in the spring of 2007. In this paragraph the Commission explains why it did not accept Mr. Wing’s evidence that in making the impugned trades or deciding to short sell shares in SXR Uranium One he relied upon a May 10, 2007 article which indicated that SXR might make a bid for EMC and that EMC was a takeover target. The Commission points out that Mr. Wing could not explain why he preferred EMC over the other uranium stocks mentioned in the article.

242In paragraph 208 the Commission emphasizes that the purchase of EMC was not on the advice of Mr. Wing and Pollen’s investment advisor.

243In paragraph 209 the Commission explains why it did not accept Mr. Wing’s testimony that he did not discuss stocks with Ms. Agueci. Specifically, the Commission found from a review of the evidence, which included Ms. Agueci’s emails, that she discussed stocks with just about everyone. Ms. Agueci stated, and other respondents and witnesses confirmed, that she told everyone about her stocks. Accordingly, the Commission did not believe that Ms. Agueci did not discuss stocks with Mr. Wing, with whom she was personally involved during the relevant period.

244In paragraph 210 the Commission states that it found Mr. Wing to be less than forthcoming about his involvement with Pollen and its trading account in Switzerland at Socièté Générale Private Banking (Suisse) SA. It comments on the fact that Mr. Wing misrepresented the nature of his interest when he was opening the Pollen sub trading account at the investment dealer Fort House, where he was the Chief Compliance Officer.

245In paragraph 211 the Commission explains why it does not agree with Mr. Wing’s submission that there was a seven-day delay between the time Ms. Agueci learned of material non-public information concerning EMC and Mr. Wing’s first purchases.

246In paragraph 212 the Commission explains why it disregarded Mr. Wing’s assertion that he and Ms. Agueci spoke every day and that therefore trades were bound to be in proximity to communications between the two of them. The Commission was well aware of the romantic on-again off-again relationship. The fact that no witness contradicted Mr. Wing’s explanation of the frequent phone calls did not mean that the Commission was bound to accept that explanation. Specifically, the Commission emphasized that the timing of the communications to the placements of the orders and the rush to fill the orders supported the inference that Ms. Agueci had communicated material non-public information to Mr. Wing.

247In paragraph 213 the Commission explains why it discounted Mr. Wing’s assertion that the fact that he purchased EMC shares in his personal account indicated that he had nothing to hide and there was nothing untoward in those purchases.

248In paragraph 214 the Commission emphasizes that in Mr. Wing’s email communications with the Swiss private banker who traded the Pollen Swiss account, Mr. Wing distanced himself from the trading by referring to the person authorizing the trade as a fictional client rather than himself.

249In paragraph 215 the Commission explains why it attaches no significance to the fact that Mr. Wing did not sell his shares immediately after the first EMC announcement.

250In paragraph 216 the Commission explains why it disregarded Mr. Wing’s evidence that his purchases of EMC shares were based on research reports recommending EMC.

251In paragraph 217 the Commission acknowledges that Mr. Wing has never previously been implicated in enforcement proceedings.

252In paragraph 218 the Commission acknowledges Ms. Agueci’s position that the evidence supports at most the conclusion that she recommended EMC but does not support an inference that she communicated material non-public information to Mr. Wing.

253Finally, paragraphs 219-220 express the Commission’s conclusion based on the “combined weight of the evidence” that Ms. Agueci informed Mr. Wing of material non-public information concerning EMC and that Mr. Wing and Pollen, through Mr. Wing, traded in shares of EMC while Mr. Wing was in possession of that information.

254A review of these paragraphs makes clear that the Commission was aware of Mr. Wing’s on-again off-again romantic relationship with Ms. Agueci and took it into account when assessing the totality of the evidence. The Commission’s reasons make it clear that the Commission did much more than equate mere opportunity to pass material non-public information with proof positive that material non-public information had been passed and received. The Commission’s reasons demonstrate that it based its findings on inferences from established facts and not on inferences from speculation and innuendo. The Commission’s reasons explain why it disregarded significant portions of Mr. Wing’s evidence and why it concluded that the circumstantial evidence before it was persuasive of the fact that Mr. Wing and Pollen, through Mr. Wing, traded in shares of EMC while in possession of material non-public information.

255It is inconsistent with a reasonableness standard of review for this court to substitute its view of the appropriate inferences from the totality of the evidence for the Commission’s view.

HudBay Minerals Inc

256The Commission explained its reasons for concluding that Mr. Wing and Pollen traded in shares of HudBay while in possession of material non-public information provided by Ms. Agueci at paragraphs 415-431.

257Paragraphs 415-419 contrast Mr. Wing’s telephone calls with Ms. Agueci with the events at Ms. Agueci’s employer GMP and Mr. Wing’s purchases of HudBay shares.

258Paragraph 420 sets out the fact that in the Commission’s view, Mr. Wing is a directing mind of and the sole signatory to the Pollen’s Private Swiss bank trading account. As a result, his trading activity and Pollen’s trading activity and holdings must be considered together. Based on that, the Commission concluded that the purchases of HudBay shares by Pollen and Mr. Wing in the two-week period of mid-2007 in the amount of $1,648,473 were significant.

259In paragraph 421 the Commission concludes that the fact that Mr. Wing and Pollen had not purchased HudBay shares between December 2006 and July 2007, during the period when GMP was retained by HudBay in respect of a takeover offer HudBay was expecting to receive, is noteworthy but not conclusive. It agrees with Mr. Wing’s submission that the trades were not uncharacteristic or unusually risky for Mr. Wing and Pollen. The Commission acknowledges that both held commodity stocks and other resource stocks at that time. It also observes that Ms. Agueci and Mr. Wing spoke on July 17, 2007 while he was vacationing in Italy, and that he made repeated efforts to contact his Swiss banker until he succeeded in filling an order for HudBay shares on July 20, 2007. The Commission found that his conduct in this regard indicated a sense of urgency and supported the inference that he had received material non-public information from Ms. Agueci.

260In paragraph 422 the Commission acknowledges that Mr. Wing and Ms. Agueci were on intimate terms during 2007. The Commission also indicates in the same paragraph that it does not accept Mr. Wing’s evidence that he and Ms. Agueci never spoke about stocks because Ms. Agueci’s history indicated that she discussed stocks with almost everyone.

261In paragraph 423 the Commission acknowledges Mr. Wing’s submission that he spoke with Ms. Agueci almost every day, and therefore his trades were bound to be in proximity to those communications. Commission explains why, despite that evidence, it does not view as coincidental the fact that Mr. Wing placed orders to buy HudBay shares for himself or for Pollen on July 18, July 31 and August 2, 2007, shortly following communications with Ms. Agueci.

262In paragraph 424 the Commission describes why it does not believe Mr. Wing’s explanation that he relied upon an expectation of demand from China for Canadian commodities in buying HudBay shares. Specifically, the Commission does not find it credible that this would account for his sudden decision to purchase over $1 million worth of HudBay shares in a two-week period in the summer of 2007 while he was travelling in Europe. It also did not explain why he preferred HudBay shares over other resource and commodity companies.

263In paragraph 425 the Commission takes note of the fact that the purchases of HudBay shares were not on the advice of Mr. Wing’s investment advisor at the Swiss private bank.

264In paragraph 426 the Commission explains why it does not accept Mr. Wing’s assertion that his failure to sell HudBay shares until April 2008 was significant.

265In paragraph 427 the Commission explains why it does not accept Mr. Wing’s evidence that there was a 29-day delay between Ms. Agueci’s acquisition of material non-public information and his orders to purchase HudBay shares in his personal account, and a 16-day delay before orders to purchase shares in the Pollen account. The Commission explains why it does not accept Mr. Wing’s time frames.

266In paragraph 428 the Commission acknowledges Mr. Wing’s 35-year career without allegations of insider trading.

267At paragraph 429 the Commission acknowledges Ms. Agueci’s submission that the evidence at most supports the conclusion that she recommended HudBay to Mr. Wing, but does not support a finding that she passed material non-public information to him. The Commission found that Mr. Wing, an experienced and knowledgeable market participant, would not purchase stock on a simple recommendation from Ms. Agueci.

268Finally, paragraphs 430-431 express the Commission’s final conclusions “based on the combined weight of the evidence” concerning Mr. Wing and Pollen’s trading in HudBay shares.

269The Commission was well aware of Mr. Wing’s assertion that his romantic relationship with Ms. Agueci explained the temporal proximity of his trades and his communications with her. The Commission was aware of Mr. Wing’s interest in commodity stocks and explained why this was not a persuasive explanation for his sudden interest in HudBay shares while he was travelling in Europe. The Commission was aware that Mr. Wing and Pollen lost money on these shares. As can be seen, the Commission’s reasons were far more considered than the appellant describes.

270It is entirely inconsistent with a reasonableness standard of review for this court to substitute its view of the appropriate inferences from the totality of the evidence for the Commission’s view.

Northern Orion Resources Inc. / Meridian Gold Inc.

271The Commission explained its reasons for concluding that Mr. Wing and Pollen traded in shares of Northern Orion Resources Inc./Meridian while in possession of material non-public information received from Ms. Agueci at paragraph 337-352 of the Merits Decision.

272Paragraphs 337 and 338 contrast communications between Ms. Agueci and Mr. Wing with Mr. Wing’s and Pollen’s purchases of Northern and Meridian shares.

273In paragraph 339 the Commission explains why it finds Pollen’s purchases of shares of those companies in the amount of $1,313,462 significant. It points out that Pollen had not purchased Northern and Meridian shares prior to this purchase. It also agrees that the impugned trades were not necessarily uncharacteristic or unusually risky for Pollen. It acknowledges that Pollen held commodity stocks at that time. The Commission finds that the trades were highly profitable – 20% for Northern in four and a half months and 5% for Meridian in 11 days. It also explains why it attaches little significance to the fact that Mr. Wing did not sell his Northern Orion Resources Inc. shares shortly after the joint announcement of the three-way stock transaction.

274In paragraph 340 the Commission relies on the Toronto Stock exchange trading data to rejects Mr. Wing’s explanation for his purchases.

275In paragraph 341 the Commission relies on the fact that Mr. Wing and Pollen placed their orders to buy Northern and Meridian at market. In the Commission’s view, this demonstrated an attempt to buy quickly. The Commission also found the fact that Pollen purchased both targets (Northern Orion’s Resources Inc. and Meridian) at the same time to be strong circumstantial evidence that Mr. Wing had material non-public information at the time of these purchases. In addition, the Commission noted that Pollen did not purchase Meridian shares until Meridian had been approached by Yamana Gold Inc. and responded positively to the proposed three-way transaction.

276In paragraph 342 the Commission explains why it rejects Mr. Wing’s attempt to rely on his compelled evidence concerning his reason for purchasing shares of Northern Orion Resources Inc. and Yamana Gold Inc.

277In paragraph 343 the Commission comments on the fact that despite having access to an experienced portfolio manager/investment advisor at the Swiss private bank, these purchases were not made on a recommendation from that advisor.

278In paragraph 344 the Commission explains why it rejected Mr. Wing’s evidence that there was a 16-day delay between the time Ms. Agueci learned of material non-public information and Pollen’s first purchase of Northern shares, and a 21-day delay before Pollen’s first purchase of Meridian shares.

279In paragraph 345 the Commission explains why it does not accept the submission that the communications between Ms. Agueci and Mr. Wing were coincidental. Specifically, the Commission comments on the timing of the telephone communications and the placement of the orders to purchase the stocks, as well as Mr. Wing’s rush to fill the orders. The Commission found that this evidence supported an inference that Ms. Agueci provided Mr. Wing with material non-public information during those communications.

280In paragraph 346 the Commission refers to Mr. Wing’s claim that he did not try to hide Pollen’s Northern purchasers. Specifically, the Commission found that Mr. Wing was hiding the impugned purchases through the Pollen Swiss bank account because Canadian authorities would not know that it was his trading activity. The Commission comments on the fact that Ms. Stephany, who is also the subject of these proceedings, did not know that Pollen’s account was controlled by Mr. Wing.

281In paragraph 347 the Commission explains why it attaches no significance to the fact that Mr. Wing delayed selling the Northern shares (by then the Yamana Gold Inc. shares) until four months after the announcement of the three-way transaction.

282In paragraph 348 the Commission acknowledges that Mr. Wing has not previously been implicated in the enforcement proceedings. In paragraph 349, the Commission deals with the fact that Mr. Fiorillo and Ms. Stephany did not trade in Northern Orion Resources Inc. shares.

283In paragraph 350 the Commission acknowledges Ms. Agueci’s position that the evidence supports at most an inference that she recommended Northern/Meridian shares but not that she provided Mr. Wing with material non-public information concerning those companies. The Commission finds that Mr. Wing was an experienced and knowledgeable market participant and that he would not have purchased stock based solely on a recommendation from Ms. Agueci.

284Finally, paragraphs 351 and 352 set out the Commission’s ultimate conclusions “based on the combined weight of the evidence” that Mr. Wing and Pollen, through Mr. Wing, traded in shares of Northern Orion Resources Inc. and Meridian while in possession of material non-public information provided by Ms. Agueci.

Conclusion

285The Commission’s conclusions in respect of each reporting issuer were drawn from the totality of the evidence. This totality of the evidence consisted of much more than the proximity of contact with Ms. Agueci and Mr. Wing and Pollen’s securities trading.

286It is entirely inconsistent with a reasonableness standard of review for this court to substitute its view of the appropriate inferences from the totality of the evidence for the Commission’s view.

Mr. Wing’s objection to the use of Ms. Agueci’s section 11 compelled testimony is rejected

287Mr. Wing also submitted that the admission of Ms. Agueci’s section 11 compelled testimony was objectionable. I have already dealt with this objection in relation to Mr. Fiorillo. Mr. Wing makes the same argument and I reject it for the same reasons.

Mr. Wing does not appeal the finding that he misled Staff

288Mr. Wing does not appeal the Commission finding that he misled Staff during his compelled examination.

The sanctions imposed upon Mr. Wing were not excessive.

The administrative penalty

289Insider trading erodes public confidence in the capital markets. The Commission is entitled to substantial deference when imposing sanctions. See Donnini at para.54.

290In Part III of its Sanctions Decision, the Commission correctly set out the law on sanctions.

291The Commission correctly identified the aggravating factors in sanctioning Mr. Wing. For example, it found that, despite being the Chief Compliance Officer and Ultimate Designated Person at Fort House, he repeatedly disregarded his responsibilities and that collectively with Pollen profited from his misconduct. It also correctly identified that he misled Staff during the course of its investigation and that this was an aggravating factor, especially when coupled with his attempts to hide his beneficial interest, trading activity and financial gains in Pollen’s Swiss trading account. Specifically, the Commission found that Mr. Wing continued to deny the existence of a personal trading account at the Swiss private bank despite having been shown documentary evidence for the personal account which included a copy of his passport.

292The Commission ordered Mr. Wing to pay jointly and severally with Pollen Services Limited over $2.57 million, including a $1.5 million administrative penalty. The Commission ordered Mr. Wing to pay a separate $250,000 administrative penalty for misleading Staff.

293The Commission of course was well aware that it had imposed on Mr. Wing and Pollen, with some exceptions, a permanent prohibition from trading in the capital markets.

294The Commission identified in its Sanctions Decision that Mr. Wing was an experienced registrant who had held senior positions in the securities industry for 35 years. In its Merits Decision, the Commission identified the fact that Mr. Wing had never been implicated in enforcement proceedings over the course of his 35-year career. The Commission could not help but know that these breaches had occurred approximately eight years prior to the imposition of sanctions because the Commission was well aware of the relevant time period when the insider trading occurred.

295Counsel for Mr. Wing referred us to eight Commission’s decisions imposing administrative penalties, arguing that the administrative penalty imposed on Mr. Wing exceeds the Commission’s ordinary level of penalties. The penalties referred to were imposed between 2005 and 2008. Four of these decisions amounted to the approval of settlement agreements. In this case there was no settlement, and portions of Mr. Wing’s testimony were disbelieved. The Commission is entitled to conclude that administrative penalties imposed 7 to 10 years ago are no longer sufficient for general deterrence purposes.

296The imposition of an administrative penalty is not a mathematical exercise. Mr. Wing executed two insider trades in his personal account and caused Pollen to execute 10 insider trades in four different issuers (EMC, Northern, Meridian and HudBay) using an account set up through a Swiss private bank in the name of a British Virgin Islands company.

297The Commission is entitled to deference concerning the quantum of the administrative penalty required for the purpose of general deterrence. The Commission is not obliged to provide a detailed calculation explaining why the amount of $1.5 million was appropriate to achieve that purpose.

Costs

298The Commission is entitled to deference in the manner in which it arrives at the appropriate level of costs. In this case, the approach taken by the Commission was reasonable. It reduced its global costs of $2.7 million to $675,000 in an effort to reflect a settlement payment from someone other than the appellants, partial success at the Merits Hearing and other factors. It then ordered Mr. Wing and Pollen Services Limited the pay costs in the amount of $300,000.

299Mr. Wing suggests that this method of calculation was not reasonable because the global amount included costs incurred that were not attributable to the offending conduct of the respondents. Staff cannot know at the beginning where an investigation will end. It is not unreasonable for an investigation to be much wider than the proceedings which flow from it. In this case Mr. Wing’s portion of the costs amounted to approximately 11% of the Commission’s calculation of its total costs. As indicated, the method by which the Commission arrived at Mr. Wing’s costs is transparent. The Commission made an allowance for settlements and partial success. Having regard to those circumstances, I attach little significance to the fact that the panel arrived at a quantum of costs that was greater than Staff asked for, just as I would have attached little significance to a cost determination that was less than that sought by the Staff.

300Having regard to the above considerations, I am satisfied that the quantum of costs ordered against Mr. Wing is reasonable and that there is therefore no basis upon which this court can interfere with the Commission’s decision in that regard.

Disgorgement

301The appellant Wing submits that the Commission erred in its calculation of profits obtained by Mr. Wing and Pollen on the Northern/Meridian transaction for the purposes of calculating disgorgement. The Commission calculated Pollen’s Northern profit at $171,065 and its Meridian profit at $42,910.

302The appellant alleges two errors. First, the Northern transaction was a conditional 3-way transaction with Yamana Gold Inc. seeking to acquire both Meridian and Northern. Specifically, Yamana Gold Inc. would acquire 100% of the outstanding common shares of Northern in an all share transaction and subsequently acquire all of the outstanding common shares of Meridian in a cash and share offer. Two of Pollen’s trades in Northern prior to Yamana approaching Meridian. The appellant submits that there was no reasonable basis to conclude that the transaction would proceed prior to Yamana approaching Meridian and therefore information conveyed prior to the proposal could not have been material. As such, the appellant submits that Pollen’s two trades prior to Yamana approaching Meridian should have been excluded from the calculation of profits for disgorgement purposes.

303This argument does not appear to have been made before the Commission. In any event, it is not persuasive.

304The Commission found that Yamana Gold Inc.’s intention to make a proposal to acquire Northern and a concurrent proposal to Meridian to combine all three companies was a material fact as of May 28, 2007. The Commission also determined that the terms of the Yamana Gold Inc. proposal that it was to be an acquisition of 100% of the outstanding common shares of Northern and Meridian was a material fact as of June 8, 2007. The Commission determined that Yamana Gold Inc.’s intention to acquire both companies at a premium over closing was material as of June 8, 2007.

305Pollen’s first purchase of shares, according to paragraph 337 of the Merits Decision, occurred on June 12, 2007.

306The Commission has previously rejected the argument that materiality is negated by the fact that an acquirer had not proposed the acquisition to the target company. See Re Donald (2012), 2012 ONSEC 26, 35 O.S.C.B. 7383 at paras. 269 and 275. There is no basis upon which this court could conclude that this proposition is unreasonable. It is a proposition that is squarely within the area of expertise of the Commission. It is within the range of possible outcomes in the sense that it is readily understandable that knowledge of a reporting issuer’s intention to acquire another reporting issuer could reasonably be expected to have a significant effect on the market price or value of the securities of both the acquirer and the target company.

307Accordingly, the Commission was not required to exclude Pollen’s two trades prior to Yamana approaching Meridian from its profit calculation for disgorgement purposes.

308The appellant alleges a second error; namely that the amount of profit calculated for the purposes of disgorgement ought to have been based solely on the increase in trading price in the period while Mr. Wing and Pollen were in possession of material nonpublic information. The appellant argues that when the information is disseminated to the public, it is no longer non-public information. Any change thereafter in the trading price of the shares, the appellant argues, cannot be directly attributable to the impact of the material nonpublic information.

309Accordingly, the appellant submits that the profits realized in the Pollen account should have been calculated from June 13, 2007 to July 26, 2007. Extending the profit period to the time that Mr. Wing directed the sale of the Northern shares in the Pollen account on October 23, 2007, in the appellant’s view, improperly takes into account a time where there was no longer any material nonpublic information. Had the Panel calculated the profit earned in the Pollen account based solely on the impact on the trading price of the material nonpublic information, the trades would have made a profit of $35,000, not $171,065. Due to the fact that the administrative penalty levied against Mr. Wing and Pollen was based on a 3x multiple of the profit calculation, the appellant therefore submits that the administrative penalty should be reduced by approximately $300,000.

310This argument is not persuasive.

311Section 127(1) clause (10) of the Securities Act provides as follows:

127 (1) The Commission may make one or more of the following orders if in its opinion it is in the public interest to make the order or orders:

10. If a person or company has not complied with Ontario securities law, an order requiring the person or company to disgorge to the Commission any amounts obtained as a result of the non-compliance.

312Section 127 (1) clause 10 provides for the disgorgement of “any amounts obtained as a result of the noncompliance”. This clause gives the Commission broad authority to order Pollen to disgorge its actual profits rather than a profit calculated artificially. The Commission decided that depriving Mr. Wing and Pollen of their entire profit from their insider trading in Northern Orion Resources Inc. was the best way to protect investors and foster confidence in the capital markets. This was a decision that fell within the Commission’s expertise. Calculating the amount to be disgorged as the actual profit obtained from the insider trading is within the range of possible acceptable disgorgement calculations. The Commission’s calculation is transparent and intelligible. It is based on the proposition that persons who engage in insider trading will not be permitted to keep any of their profits.

313I am not satisfied that there is any basis to interfere with the Commission’s disgorgement calculations.

The Commission did not order disgorgement from The Honey Trust

314The appellant submits that the Commission lacked jurisdiction to order disgorgement of profits obtained by the Honey Trust in the Pollen account. As set out above, Pollen Services Limited is wholly owned by the Honey Trust. The appellant argues that the profit belongs to the beneficial owners of the Honey Trust, who are the appellant’s sons, and not the appellant.

315I reject this submission. The Commission made no order against the Honey Trust.

316The Commission’s order was directed against Pollen. The Commission’s order provided that “Wing and Pollen should jointly and severally disgorge the amount of $520,916.”

317The Commission found that Mr. Wing held authority over and benefited from Pollen’s Swiss account and that Mr. Wing was responsible for Pollen’s misconduct pursuant to section 129.2 of the Act.

318As indicated, section 127 clause 10 empowers the Commission to order a company to disgorge any amount that it obtained as a result of its noncompliance with the Act. Pollen engaged in insider trading, which was clearly contrary to the Act. It obtained money in its account as a result of that insider trading. It can be ordered to disgorge a sum equal to the amount that it obtained and that is what the Commission did.

319Accordingly, the appellant Wing’s appeal against the sanctions ordered by the Commission is dismissed.

Conclusion concerning the appellant Wings appeal from the Commission’s Merits and Sanction Decisions

320The appellant Wing’s appeals against both the Commission’s finding of insider trading and the sanctions imposed are dismissed.

The appeal of Kimberley Stephany

321Kimberley Stephany ("Ms. Stephany") appeals from the decisions of the Ontario Securities Commission dated February 11 and June 24, 2015. The Commission found that she had purchased shares in three reporting issuers (EMC, HudBay and Coalcorp) while having knowledge of material non-public information received from Ms. Eda Marie Agueci, in breach of the Securities Act and imposed sanctions on her for so doing.

322Prior to being registered with the OSC, Ms. Stephany worked as an executive assistant to the head of the Corporate Finance group at First Marathon, where she met Ms. Agueci who was also working there as an executive assistant. The two became and remained close friends.

323Ms. Stephany, a resident of Ontario, was first registered in the securities industry in 1981 as a salesperson for Richardson Greenshields. In May 2004, when she began working at Fort House Inc., (an investment dealer then registered with the OSC), Ms. Stephany became registered as a dealing representative of an investment dealer. Ms. Stephany left Fort House Inc. in November 2007 to join Brant Securities Limited, where she remained until her registration with the Commission ended on August 15, 2012

The OSC found the following concerning the appellant Stephany:

EMC Findings

324With respect to Ms. Stephany, the Commission found the following occurred between May 8 and 18, 2007:

• EMC was a "reporting issuer" within the meaning of the Act;

• as an employee of GMP, Ms. Agueci was a person in a special relationship with EMC within the meaning of subsection 76(5)(c) of the Act;

• in her capacity as an employee of GMP, Ms. Agueci became aware of facts that would reasonably be expected to have a significant effect on the market price or value of the EMC securities and were therefore "material facts" with respect to EMC, within the meaning of the Act (EMC Material Facts);

• Ms. Agueci informed Ms. Stephany, other than in the necessary course of business, of the EMC Material Facts before they had been generally disclosed, contrary to subsection 76(2) of the Act and contrary to the public interest and section 127(1) of the Act;

• Ms. Stephany learned of the EMC Material Facts from Ms. Agueci, and knew or ought reasonably to have known that Ms. Agueci was a person in a special relationship with EMC and, as a result, Ms. Stephany was a person in a special relationship with EMC within the meaning of subsection 76(5)(e) of the Act;

• Ms. Stephany purchased EMC securities with knowledge of the EMC Material Facts that had not been generally disclosed, contrary to subsection 76(1) of the Act and contrary to the public interest and section 127(1) of the Act.

HudBay Findings

325With respect to Ms. Stephany, the Commission found the following occurred between July 17, 2007 and September 18, 2007:

• HudBay was a "reporting issuer" within the meaning of the Act;

• as an employee of GMP, Ms. Agueci was a person in a special relationship with HudBay within the meaning of subsection 76(5)(c) of the Act;

• in her capacity as an employee of GMP, Ms. Agueci became aware of facts that would reasonably be expected to have a significant effect on the market price or value of the HudBay securities and were therefore "material facts" with respect to HudBay within the meaning of the Act (HudBay Material Facts);

• Ms. Agueci informed Ms. Stephany, other than in the necessary course of business, of the HudBay Material Facts before they had been generally disclosed, contrary to subsection 76(2) of the Act and contrary to the public interest and section 127(1) of the Act;

• Ms. Stephany learned of the HudBay Material Facts from Ms. Agueci, and knew or ought reasonably to have known that Ms. Agueci was a person in a special relationship with HudBay and, as a result, was herself a person in a special relationship with HudBay within the meaning of subsection 76(5)(e) of the Act;

• based on the foregoing, Ms. Stephany purchased HudBay securities with knowledge of the HudBay Material Facts that had not been generally disclosed, contrary to subsection 76(1) of the Act and contrary to the public interest and section 127(1) of the Act.

Coalcorp Mining Inc. (Coalcorp) Findings

326With respect to Ms. Stephany, the Commission found the following occurred between January 29, 2008 and February 1, 2008:

• Coalcorp was a "reporting issuer" within the meaning of the Act;

• as an employee of GMP, Ms. Agueci was a person in a special relationship with Coalcorp within the meaning of subsection 76(5) (c) of the Act;

• in her capacity as an employee of GMP, Ms. Agueci became aware of facts that would reasonably be expected to have a significant effect on the market price or value of the Coalcorp securities and were therefore "material facts" with respect to Coalcorp, within the meaning of the Act (Coalcorp Material Facts);

• Ms. Agueci informed Ms. Stephany, other than in the necessary course of business, of the Coalcorp Material Facts before they had been generally disclosed, contrary to subsection 76(2) of the Act and contrary to the public interest and section 127(1) of the Act;

• Ms. Stephany learned of the Coalcorp Material Facts from Ms. Agueci, and knew or ought reasonably to have known that Ms. Agueci was a person in a special relationship with Coalcorp and, as a result, Ms. Stephany was a person in a special relationship with Coalcorp within the meaning of subsection 76(5)(e) of the Act; and

• Ms. Stephany purchased Coalcorp securities with knowledge of the Coalcorp Material Facts that had not been generally disclosed, contrary to subsection 76(1) of the Act and contrary to the public interest and section 127(1) of the Act.

The appellant Stephany’ submissions

327Ms. Stephany complains that the Commission’s reasons failed to address key defences raised by her and the evidence supporting those defences, and that the Commission pursued a fundamentally flawed approach to the drawing of inferences from the evidence.

328More specifically, Ms. Stephany complains that the Commission’s reasons did not recognize or consider the unchallenged evidence that contacts between her and Ms. Agueci were so regular and so frequent, that it would be more remarkable had there not been any contact between them during the periods in which the impugned trades were executed.

329I propose to consider the appellant Stephany’s submission first in relation to the reporting issuer Coalcorp

Coalcorp

330The Commission’s reasons for finding that Ms. Agueci communicated material non-public information to Ms. Stephany and that Ms. Stephany traded in shares of Coalcorp with that knowledge are set out at paragraphs 598-606 of the Merits Decision.

331At paragraphs 598-600 the Commission contrasts the timing of Ms. Stephany’s trading in Coalcorp and the timing of telephone calls and a tennis match that she had with Ms. Agueci.

332In paragraph 601 the Commission finds that, while the purchases were not unusually large for Ms. Stephany, they earned a high return over a short period of time.

333At paragraph 602 the Commission observes that the purchases were risky, although not out of character. The Commission found the purchases risky because at the time Ms. Stephany was borrowing money from friends in order to purchase a new home.

334At paragraph 603 the Commission finds that Ms. Stephany could not recall why she invested in Coalcorp stock. It also explains why it finds the explanation suggested to Ms. Stephany by her counsel during her examination to be unpersuasive.

335At paragraph 604 the Commission explains why it rejects Ms. Agueci’s submission that the evidence would at most support a conclusion that she recommended stocks to Ms. Stephany, but not that she disclosed material non-public information to her. The Commission comments that Ms. Stephany was an experienced market participant and would not have purchased stocks on a simple recommendation with nothing more from Ms. Agueci.

336Paragraphs 605 and 606 express the Commission’s conclusions “based on the combined weight of the evidence” that Ms. Agueci provided Ms. Stephany with material non-public information and that Ms. Stephany traded in the shares of Coalcorp with that knowledge.

337The appellant relies on the fact that, during the relevant period, “grey lists” from Ms. Agueci’s firm listed no fewer than 69 stocks for which trading was not permissible. The appellant argues that despite that and despite her close friendship with Ms. Agueci, the Commission was only able to prove insider trading in relation to three reporting issuers.

338The appellant also submits that the evidence disclosed that she was a risky investor and that at one point had remortgaged her house to raise money to invest in the stock market.

339The Commission is not required to mention every factual assertion by a party. The Commission found Coalcorp investment to be risky, given the appellant’s current financial situation. It was entitled to consider that fact when considering the total constellation of facts surrounding the appellant’s trading in Coalcorp

340The appellant points out that the evidence suggested that she watched trends in the market, spoke to people about stocks and was aware of rumours and “buzz” in the market. The appellant points out that the trades were not out of character. The appellant suggests that she had little detailed recollection of the trades in question because they occurred six or seven years before the Commission’s hearing. The Commission dealt with the appellant’s difficulty in explaining why she traded in Coalcorp shares.

341The appellant also points out that there was documentary evidence before the Commission relevant to Coalcorp that included an announcement of a shareholders’ rights plan and press releases regarding significant purchases of Coalcorp stock by a third party, indicating a potential takeover bid. The appellant’s counsel suggested that this could have triggered the appellant’s interest in the stock. This particular issue was put to the Commission and is referred to in paragraph 603 of the Merits Decision. In that paragraph, the Commission indicates why it rejects the suggestion that Ms. Stephany invested in Coalcorp on the basis of public announcements about the shareholders’ rights plan.

342It was suggested during the course of oral argument that in paragraph 603 the Commission demonstrates that it has shifted the burden of proof to Ms. Stephany. I do not accept this submission.

343Ms. Stephany testified and denied receiving material non-public information from Ms. Agueci. The Commission was obliged to explain how it viewed her evidence.

344The Commission indicated in that paragraph that it could not understand Ms. Stephany’s market behaviour; namely waiting until January 30, 2008 to buy Coalcorp shares despite the fact that she agreed with her counsel’s suggestion that press announcements concerning a shareholders’ rights plan could have triggered her interest. The Commission observes that the publication of the shareholders’ rights plan occurred in early November 2007 and Ms. Stephany’s purchases did not occur until January 30, 2008.

345In paragraph 603, the Commission references the fact that Ms. Stephany could not recall exactly why she purchased Coalcorp stock. The Commission also indicates why it does not accept Ms. Stephany’s adoption of her counsel’s suggestion of a reason for her purchase. The Commission’s comment that “… Stephany offered no explanation for why she waited until January 30, 2008 to buy Coalcorp shares” was simply a statement of where the Commission was left after taking into account Ms. Stephany’s evidence.

346The appellant Stephany is re-arguing the merits of her case before our court. The argument in this court is that the Commission drew improper inferences from circumstantial evidence. I reject this argument. The Commission’s inferences are based on facts that were proven in the evidence. They are not based on facts that are hypothetical or assumed. Even if I disagreed with the inferences drawn by the Commission, which I do not, it would be inconsistent with the reasonableness standard of review for me to substitute the inference that I would have drawn from the evidence for the inference drawn by the Commission.

347The Commission’s conclusions are transparent. Specifically, at paragraph 68 of its Merits Decision, the Commission makes the following two statements:

Each case must be considered in light of the circumstances and the facts proven therein. Therefore, we do not accept that trades must be proven to be “highly uncharacteristic, risky and highly profitable trades” in every case.

In our view, circumstantial evidence of opportunity to acquire knowledge of a material undisclosed fact, combined with evidence of well-timed and profitable trades, which are based on proven facts that are sufficiently linked to the inferences, can lead to a reasonably and logically drawn inference of knowledge.

348Given that the Commission is a specialized tribunal and that its decisions in insider trading cases are subjected to a reasonableness standard of review, this court should not substitute its own conclusions concerning what kind of market behaviour is sufficient to permit it to draw the inference that material non-public information was communicated for those of the Commission.

349I am satisfied that the Commission’s reasons adequately explain why it drew the inferences that it did and that the appellants arguments before this court should be rejected because they are an invitation to this court to retry the matter. This is inconsistent with the standard of review which this court has decided in the past to apply to decisions of the Commission in insider trading cases.

EMC (EMC)

350The Commission’s reasons for finding that Ms. Stephany traded in shares of EMC while in possession of material non-public information provided to her by Ms. Agueci are set out in paragraphs 243-254 of the Merits Decision.

351Paragraphs 243 and 244 contrast Ms. Stephany’s trading activities with her contacts with Ms. Agueci.

352In paragraph 245 the Commission explains why it found Ms. Stephany’s evidence concerning her decision to invest in EMC to be of little assistance.

353In paragraph 246 the Commission explains why it found aspects of Ms. Stephany’s evidence concerning her relationship with Ms. Agueci to be inconsistent.

354In paragraph 247 the Commission comments on the fact that Ms. Stephany’s purchases of EMC in the amount of $38,679 were significant because it was approximately 38% of her annual salary. It also takes into consideration Ms. Stephany’s trading pattern in EMC shares.

355In paragraph 248 Commission finds that Ms. Stephany’s purchases of EMC were significantly large and risky relative to her income and particularly due to the fact that her purchases were made on margin. It comments that the purchases of EMC shares were not out of character, but that they were risky relative to the potential loss of money invested. The Commission was not persuaded that Ms. Stephany could not recall the details of the purchase because at that time she had to remortgage her house in order to make investments in the market and bought EMC stock on margin.

356In paragraph 249 the Commission comments that the purchases were highly profitable and earned a 16% return in a 7 to 9-day period.

357In paragraph 250 the Commission explains why it decided to disregard Ms. Stephany’s explanation concerning her market behaviour.

358In paragraph 251, the Commission explains why it does not accept Ms. Stephany’s assertion that there was a 10-day delay between Ms. Agueci obtaining knowledge of material non-public information about EMC and the date when Ms. Agueci is alleged to have informed Ms. Stephany of those facts.

359In paragraph 252 the Commission references Ms. Agueci’s submission that the evidence at most supports the conclusion that she recommended the stock, but not that she passed on material non-public information about EMC. The Commission finds again that Ms. Stephany, as an experienced market participant, would not purchase stock based on a simple recommendation from Ms. Agueci.

360Finally, in paragraphs and 253 and 254 the commission expresses its conclusions after considering the totality of the evidence.

361The appellants Stephany’s objections to the inferences drawn by the Commission are simply not supported by a review of the Commission’s reasons. I am satisfied that the Commission’s reasons adequately explain why it drew the inferences that it did and the appellant’s arguments before this court should be rejected because they are an invitation to this court to retry the matter. This is inconsistent with the standard of review which this court has decided in the past to apply to decisions of the Commission in insider trading cases.

HudBay

362The Commission’s reasons for finding that Ms. Stephany traded in shares of HudBay while in possession of material non-public information about that reporting issuer provided by Ms. Agueci are set out in paragraphs 467-481.

363Paragraphs 467 to 472 contrast Ms. Stephany’s trading in shares of HudBay and her contacts with Ms. Agueci. The Commission takes into consideration that some of the purchases were in Ms. Stephany’s margin account at Fort House and others were on behalf of a client.

364In paragraph 473 the Commission finds that Ms. Stephany’s purchases in the amount of $33,270 were significant, given her financial circumstances. It finds that Ms. Stephany’s exposure was equal to approximately 25% of her annual salary.

365In paragraph 474 the Commission finds that the trades, although not out of character, were significantly large and risky, particularly because some of the purchases were made in Ms. Stephany’s margin account.

366In paragraph 475 the Commission finds that some of the credits in Ms. Stephany’s margin account were indicative of a margin call. It found that Ms. Stephany was “net long” at the end of August 10, 2007 and subsequently purchased HudBay shares to restore her overall holdings to a thousand HudBay shares. The Commission found that this supported an inference that Ms. Agueci had provided Ms. Stephany with material non-public information about HudBay.

367In paragraph 476 the Commission explains why it finds that Ms. Stephany’s explanation for her decision to purchase HudBay shares does not accord with the preponderance of the evidence.

368In paragraph 477 the Commission demonstrates how the timing of HudBay material facts becoming available to Ms. Aguesi correlated with Ms. Stephany’s first purchases of HudBay shares. The Commission explains why it has concluded that a gap between when Ms. Agueci first began learning HudBay material facts and Ms. Stephany’s first purchases of HudBay indicated that by the time Ms. Stephany made her first purchase, she had been informed by Ms. Agueci that the likelihood of the transaction occurring had increased.

369In paragraph 478 the Commission makes reference to Ms. Agueci’s submission that the evidence at most supports a conclusion that she recommended the stock to Ms. Stephany but not that she provided Ms. Stephany with material non-public information.

370In paragraph 479 the Commission further explains why it does not accept Ms. Stephany’s evidence or explanation for why and when she purchased HudBay shares.

371In paragraphs 480 and 481 the Commission expresses its conclusion based on the combined weight of the evidence that Ms. Agueci informed Ms. Stephany of material non-public information and that Ms. Stephany traded in HudBay shares before that information was generally disclosed.

372The appellant Stephany’s objections to the inferences drawn by the Commission are simply not supported by a review of the Commission’s reasons. I am satisfied that the Commission’s reasons adequately explain why it drew the inferences that it did and the appellant’s arguments before this court should be rejected because they are an invitation to this court to retry the matter. This is inconsistent with the standard of review which this court has decided in the past to apply to decisions of the Commission in insider trading cases.

Conclusions concerning Ms. Stephany’s appeal on the merits

373Ms. Stephany’s appeal against the Commission’s findings on the merits is dismissed.

The sanctions imposed on Ms. Stephany

374Ms. Stephany does not appeal the sanctions imposed by the Commission.

Conclusion

375The appeals by Mr. Fiorillo, Mr. Wing and Ms. Stephany are dismissed in their entirety.

376The respondent will provide costs submissions, not exceeding five pages, within 10 days of the release of these reasons. The appellants will provide cost submissions, not exceeding five pages, within 10 days of receipt of the respondent’s submissions. The respondent may provide reply submissions, not exceeding 5 pages, within 5 days of receipt of the appellants’ submissions.

MARROCCO A.C.J.S.C.

DAMBROT J

Released: 20161026

Concurring Reasons –Morawetz, RSJ

377I have had the opportunity to review the Judgment of Associate Chief Justice Marrocco.

378I agree with the conclusion reached by ACJ Marrocco on both the appeal of the Merits Decision and the Sanction Decision. I would, however, like to express a differing view with respect to a certain aspect of the analysis in the Merits Decision. A ground of appeal raised by all Appellants was that the Commission drew the inference that trades occurred at a time when the Appellants were in possession of material non-public information provided by Ms. Agueci.

379In my view, on this particular ground of appeal, the Appellants attempted to re-argue the merits of their case before our court. This observation was shared by ACJ Marrocco. ACJ Marrocco reviewed and analyzed the facts in detail. I take a different approach.

380The Merits Decision was detailed and lengthy. In my view, the Commissioners demonstrated a strong command of the record and there was a careful analysis of the evidence that led to the inferences drawn from the evidence. The Commissioners understood the record, appreciated the factual issues, understood the position of the parties and the evidence they relied on, to reach their conclusions.

381In these circumstances, appellate scrutiny should be restricted to determining whether the inferences drawn by the Commission are reasonably supported by the evidence.

382Although the bulk of the evidence was circumstantial in nature, this is not unusual in cases where insider trading and tipping are alleged. In my view, there was ample evidence provided to the Commission to allow the Commission to reasonably draw inferences that the Appellants received material non-public information about certain reporting issuers from Ms. Agueci and then traded in securities of those reporting issuers before that information became public.

383At paragraphs [348] and [349], ACJ Marrocco stated:

348Given that the Commission is a specialized tribunal and that its decision in insider trading cases are subjected to a reasonableness standard of review, this court should not substitute its own conclusions concerning what kind of market behavior is sufficient to permit it to draw the inference that material non-public information was communicated for those of the Commission.

349I am satisfied that the Commission’s reasons adequately explain why it drew the inferences that it did and that the appellants arguments before this court should be rejected because they are an invitation to this court to retry the matter. This is inconsistent with the standard of review which this court has decided in the past to apply to decisions of the Commission in insider trading.

384Following the principles set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 SCR 235, I find no palpable and overriding error in the inferences drawn by the Commission on the evidence. In my view, the foregoing paragraphs in the Judgment of ACJ Marrocco are sufficient to dispose of this aspect of the Merits Decision, without the necessity of a full factual review.

385On the remaining grounds of appeal of the Merits Decision, I adopt the reasons of ACJ Marrocco. I also adopt the reasons of ACJ Marrocco with respect to the dismissal of the appeal from the Sanction Decision

386ACJ Marrocco has addressed the issue of costs.