“Minor players” need major chequebooks when the OSC comes knocking

What was he thinking?

After a three-person Ontario Securities Commission panel ruled on an insider trading case last week, Tom Atkinson, the regulator’s enforcement director, was asked for his reaction to the decision that emerged following a hearing based on allegations made against 10 people involving multiple takeovers many years ago. Of the 10, four were found to have transgressed, while five were given a clean slate. The tenth party reached a settlement in 2013. Mark the score: 5-5.

According to reports, Atkinson said the five who didn’t transgress were the “minor players.”

To some, that comment, smacks of bullying or being a sore loser. It also raises two questions:

* were they just minor players because the panel determined they hadn’t breached securities rules; and,

* if they were minor players from the start, then why bother to bring allegations against them? That approach is akin to casting the net wide – just like a fisherman on some remote island – and seeing what turns up.

The OSC said its staff “do not bring these allegations lightly and are guided by the principle of whether there is a reasonable likelihood an order will be made in the public interest.” As for the future, it said the OSC’s decisions “can inform and provide guidance for future staff allegations and Commission decisions.”

But its far and wide approach forces the named minor players to incur substantial legal costs and put their life on hold.

The costs are substantial because they are required to hire lawyers familiar with the regulatory process. Without a lawyer, whose meters are always running, the OSC prosecutors would make mince meat of them. In all, the hearings lasted for 53 days spread over seven months.

And even with a win, the players, both major and minor, don’t get their costs back. (The quid pro quo is that the OSC’s accept the panel’s decision.) Maybe the OSC would have a different approach — one that’s more selective — if it was required to pay the legal bills when it brings a set of allegations against a party and loses. But the OSC seems so hell bent on getting a major insider trading victory that it presses on. Meanwhile, its counterpart south of the border (which has wider powers) is winning such cases on a regular basis.

Jacob Gornitzki was one of the five minor players. Santo Iacono, Josephine Raponi, Giuseppe Fiorini, and John Serpa were the others.

The OSC panel ruled Gornitzki was not guilty of tipping and not guilty of acting contrary to the public interest. Gornitzki was a player in the financial markets for almost three decades – having been one third of the merchant-banking firm Gornitzki Thompson & Little.

Now based in London, Gornitzki said this week that, “for me the situation started out more than three years ago where I thought I was helping the OSC. But it turned into a nightmare — both professionally and personally — and tarnished a good name that had been built up over many years. And for what? Something, which in my opinion, there was little — if any — grounds on which to allege wrongdoing. In a system that’s supposed to be ‘innocent until proven guilty’, it seems it’s the other way around.”


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