Canadian Lawyer

OP I N ION BY NEILL MAY BANKING ON CORPORATE right. When challenged by another per- son (we can call him the amicus curiae) that both sides to the argument can't be right, Tevye says something like, "You know what? You're also right. T here is a scene in Fiddler on the Roof where Tevye, the lead character, is asked to settle an argument and concludes both parties are in a circle. It is not supposed to happen to lawyers, who are expected to get to the point. But sometimes, to distort a proverb, a legal question falls in the for- est and we are left to ponder if anyone heard it. And further, if we think about it and end up right where we started, should we docket it? I have been thinking about this Some thoughts just make you spin " dynamic in the context of recent secur- ities regulatory enforcement activities relating to insider trading. At least from a statutory perspective, insider trad- ing is well covered. There are prohibi- tions against it in various forms in the Criminal Code, the Canada Business Corporations Act, and our securities laws (the tides have moved resound- ingly against the diehard theorists who argue that insider trading is valuable activity that sends efficient signals to the marketplace, though they maintain their small spot on the beach). However, much of the recent enforcement activity has relied on the security commissions' "public interest power" — the power to impose certain remedies where that path is determined to be "in the public inter- est. est jurisdiction" seems to fill gaps, like in circumstances where the impugned activity looks and smells like insider trading but for various reasons does not satisfy the technical requirements and " In some cases, this "public inter- Insider trading and the public interest power standards of insider trading laws. The recent cases of Re Suman and Re Donald are examples where activities that didn't technically contravene the insider trad- ing rules were nevertheless determined to be contrary to the public interest. In Suman, the regulators found the defendants traded based on inside infor- mation, but the issuer in question was not a "reporting issuer" in Canada, a requirement to trigger the insider trad- ing provisions. In Donald, an executive traded securities based on information gleaned at a company golf day that his employer was considering a bid for a public company, but the Ontario Secur- ities Commission found that the plan to make the bid hadn't quite reached the level of certainty required in order to trig- ger the insider trading regime. In other matters, though, the ambit ual public interest power in this context. Capital markets move fast and regula- tors in the field need to be nimble. And there are evidentiary burdens and chal- lenges with insider trading cases. Older cases, like Re ATI, show the high hurdles required for enforcement action under the insider trading regime. Newer cases like Suman and Donald show that activ- ities that look and smell like insider trad- ing can lack a technical requirement that doesn't change the nature of the activity but puts it beyond the regime' this regard, the public interest power pro- vides flexibility to the regulator. That flexibility is not unlimited; there s reach. In of the public interest discretion has been widened beyond gap-filling. As a case in point, the OSC has initiated action against a senior executive who is alleged to have counseled a friend on how to obscure trading activities (by communicating via Blackberry PIN messages). There are obvious benefits to the resid- are constraints on the public interest power. The remedies available to the regu- lators under this power are administrative in nature, and are narrower than the sanctions that can be imposed by a court. And the public interest in this context is confined to the regulators' mandate, as expressly outlined in the Securities Act, to protect investors and the efficiency and integrity of the capital markets. Still, even with those limits, the pub- lic interest power is very broad, and while there are good reasons to be com- fortable with its breadth, this is where the circular thinking comes into play. In a democratic society with checks and balances, with accountability and sophisticated thinking about the limits of enforcement, there's a level of trust in prosecutorial power. But do we allow regulators to have that power, flexibility, and trust for the very reason there are clear limits that are generally under- stood and, no pun intended, policed? And if the flexibility of such power is taken even just a little bit too far, and the predictability of the regime suffers, is there not risk that the trust might erode? On balance, it's likely manageable but calls for vigilance. I don't know where the line is, though, and Fiddler on the Roof does not seem to provide any pre- cise insights on securities laws. Maybe even writing about this isn't a good idea. I mean, it's not contrary to any statute or anything, but it may be misbehaving, or bad conduct of some sort. Uh oh. Neill May is a partner at Goodmans LLP in Toronto. His practice focuses on all aspects of securities law, with an emphasis on M&A and corporate finance. E-mail him at nmay@goodmans.ca. The opin- ions expressed in this article are those of the author alone. www.CANADIAN Lawyermag.com N O VEMBER / D ECEMBER 2012 15

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