Overturned Rankin conviction deals setback to OSC reputation

…said the ruling is certainly a disappointment for the OSC, "but the fact they demonstrated a willingness to pursue vigorously a charge of this type also sends a message to the Street that they are seriously in the enforcement business.

The Globe and Mail
November 10, 2006

Overturned Rankin conviction deals setback to OSC reputation
Regulator's track record under spotlight
Shirley Won and Janet McFarland

TORONTO — A court ruling ordering a new trial for former investment banker Andrew Rankin is a setback for the Ontario Securities Commission and underlines its poor track record at prosecuting cases in provincial court, some legal experts said yesterday.

The Ontario Superior Court yesterday overturned Mr. Rankin's conviction on charges of stock tipping, citing contradictory evidence and errors by the trial judge. Mr. Rankin, former managing director at RBC Dominion Securities Inc., was sentenced to six months in jail last year on 10 counts of tipping Daniel Duic about pending corporate deals between 1999 and 2001.

University of Toronto law professor Anita Anand said the court's decision was based on legal errors made by the trial judge who heard the case, and as such is not a direct indictment of the work of the OSC's prosecutors.

But she said the decision could make the OSC even more reluctant to exercise its option to prosecute cases in provincial court rather than conducting them as internal hearings before an OSC tribunal — particularly cases in the tricky area of insider trading.

"This is clearly a disincentive to do so, especially when the choice is purely discretionary," she said.

In his ruling yesterday, Ontario Superior Court Justice Ian Nordheimer said he was concerned the trial judge did not deal sufficiently with inconsistencies in the testimony Mr. Duic gave under oath in private to the OSC compared with later testimony during the trial.

Mr. Duic, for example, told the OSC that he did not get stock tips from Mr. Rankin by phone. During the trial, the court was told that he got five of the tips by phone. Mr. Duic made $4.5-million on 10 transactions, and "I would expect that Mr. Duic would have a clear recollection of when he received that information," Judge Nordheimer said.

He said Mr. Rankin was only directly involved in three of the corporate deals, and Mr. Duic could have gotten insider information from other ways.

The judge suggested Mr. Duic could have peeked through RBC documents at his friend's home or hacking into the brokerage firm's computer.

Judge Nordheimer also said the trial judge committed an "error in law" in not dealing with each of the 10 charges individually instead of as a group.

OSC lawyer Kelley McKinnon said the regulator will now consider its options, which include appealing the ruling or going through a new trial.

Upon hearing the decision, the 41-year-old Mr. Rankin, who wore a white shirt and a dark-grey suit, broke into tears. He hugged his wife Eva, whom he married earlier this year, and his stepmother and sister.

Mr. Rankin's father John, a retired silver-haired physician who has been tirelessly at his son's side throughout the lengthy trial, said he was "very delighted" at the result.

"I always knew that Andrew was not guilty," said Mr. Rankin, who wore a "Free Andrew Rankin" button at his son's sentencing hearing last year. "Justice has been done."

Brian Greenspan, lawyer for Mr. Rankin, said he was "gratified" by the ruling, and suggested that the OSC should listen to Judge Nordheimer's advice. In his ruling, the judge questioned whether it would be in the public interest to prosecute the case again in light of the problems with Mr. Duic's evidence.

The Rankin case was the OSC's first conviction on tipping charges, and was supposed to send a stern signal to corporate insiders that similar leaks of confidential information would not be tolerated. By moving the case to court, the commission also wanted to send a strong signal about the seriousness of the offence and the major penalties that other violators could face.

But some observers said those messages have been undermined by Judge Nordheimer's ruling.

A Bay Street securities lawyer said yesterday that the decision may suggest that it's better for the OSC to leave cases such as these to tribunal hearings, and avoid the criminal courts altogether.

Cases relating to insider trading are hard to win, he said, because lawyers have to prove an insider had information and knew it was material, but decided to trade anyway. He said the subtle nature of the offence can make it ill-suited for a court setting.

"If there's an assault or a murder, there's a body," he said. "If there's insider trading, there's just a trade like any other. There's nothing about the trade that obviously tells you there has been a crime committed. So the criminal courts are not necessarily the best suited for these kinds of offences."

Ms. Anand said the solution may be to provide more legal training to Ontario provincial court judges in securities law. At the Ontario Superior Court level, there are specialized commercial list judges who hear civil cases involving business matters. But at the provincial court level, where criminal cases are heard, judges have little experience with complex securities law matters, she said. "This is one of the most important aspects of ensuring we don't have this situation [again]," she added.

Joseph Groia, a securities lawyer and a former OSC director of enforcement, said the ruling was a "major setback in the Andrew Rankin case," but not necessarily a setback in the OSC's ability to prosecute cases generally. The ruling is simply based on "procedural issue," Mr. Groia said.

He said he expects the regulator will seek the right to appeal, and likely succeed given the importance of issues at stake.

"They have considered Rankin to be one of their most high-profile and successful prosecutions to date, and to not go ahead with an appeal would be highly surprising," he said.

Chris Nicholls, a law professor at the University of Western Ontario, said the ruling is certainly a disappointment for the OSC, "but the fact they demonstrated a willingness to pursue vigorously a charge of this type also sends a message to the Street that they are seriously in the enforcement business.”

At the OSC, some wins, some losses

Victories
Glen Harper, former president of Golden Rule Resources Ltd., was convicted in Ontario Court in 2000 of illegally selling $4-million worth of shares in his exploration firm, and was sentenced to one year in jail and ordered to pay a $4-million fine. He appealed and the sentence was dropped to six months and a fine of $2-million.

Larry Woods, a former senior executive at bankrupt Plastic Engineering Technology Corp., was the first person in Canada given jail time for insider trading. He was sentenced by an Ontario court to 90 days in 1994.

Piergiorgio Donnini, former chief trader at Yorkton Securities Inc., was found guilty of illegal insider trading by an OSC panel in 2002 and was banned from the investment business for 15 years.

Settlements
Michael Cowpland, former CEO of Corel Corp., was accused of insider trading and tipping relating to the sale of $20-million worth of Corel shares a month before a sales warning caused the stock price to drop. The flamboyant entrepreneur settled his case with the OSC in 2003, agreeing to pay $575,000 in penalties.

Michael DeGroote, founder of Laidlaw Inc., agreed to pay $23-million in 1993 to settle allegations of illegal insider trading — the largest settlement ever in an insider trading case.

Losses
K.Y. Ho, founder of ATI Technologies Inc., was found not guilty of illegal insider trading by an OSC panel in 2005. The panel said the OSC lawyers had not proved Mr. Ho and his wife knew the company was going to warn of poor financial results when they sold $7-million worth of company stock.

David Fingold, a former director of Cineplex Odeon Corp., was found not guilty by an Ontario court in 1996 on allegations he illegally traded Cineplex shares while in possession of undisclosed information about weak quarterly earnings.

Undecided
John Felderhof, former chief geologist at Bre-X Minerals Ltd., is being tried in an Ontario court on charges of illegal insider trading. The trial has wrapped up, but there has been no ruling yet.

TEXT: JANET MCFARLAND/THE GLOBE AND MAIL


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