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OSC seeking $1.5-million fine in Finkelstein insider trading

Ontario Securities Commission lawyers are seeking fines and other payments totalling almost $6.8-million from former Bay Street lawyer Mitchell Finkelstein and four others involved in a high-profile tipping and insider trading case.

OSC staff asked a hearing panel Wednesday to order Mr. Finkelstein to pay $1.5-million for tipping long-time friend Paul Azeff about three pending takeover deals, but his lawyer told the commission his client cannot afford the cost. The OSC is also seeking lifetime bans that would prohibit Mr. Finkelstein from trading securities with exceptions for registered accounts like RRSPs, and from serving as a director or officer of a company.

image: http://static.theglobeandmail.ca/e5e/report-on-business/industry-news/the-law-page/article22068433.ece/ALTERNATES/w140/OSC-finkelstein11rb2.JPG

Kim Goodman, left, walks with Mitchell Finkelstein, alleged insider-trading tipping lawyer, in the hall way of the Ontario Securities Commission during his trial, Nov. 10, 2011.
Kim Goodman, left, walks with Mitchell Finkelstein, alleged insider-trading tipping lawyer, in the hall way of the Ontario Securities Commission during his trial, Nov. 10, 2011.Brett Gundlock for The Globe and Mail
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Mitchell Finkelstein in the hall way of the Ontario Securities Commission during his trial, November 10, 2011.
Mitchell Finkelstein in the hall way of the Ontario Securities Commission during his trial, November 10, 2011.For The Globe and Mail
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The commission cannot impose jail terms in cases that are conducted as administrative hearings.

Mr. Finkelstein’s lawyer, Gordon Capern, said his client has already faced terrible consequences by losing his job as a senior partner at law firm Davies Ward Phillips & Vineberg LLP, and said an additional $1.5-million fine “goes well beyond the line of punitive.”

He said Mr. Finkelstein, 45, has two children to provide for, and his “brief run of high income years at Davies” have ended.

“This is very much a young family struggling to get by,” Mr. Capern said.

OSC commissioner Alan Lenczner, who is heading the hearing panel, said Mr. Finkelstein has not filed any documentation about his current financial state, but Mr. Capern replied it can be inferred from the fact he lost his job and has had to pay for his defence in the case.

Mr. Capern also revealed that Mr. Finkelstein worked for a sole-practitioner real estate lawyer for two and a half years after leaving Davies, then took a job at a real estate development firm. He said that job ended “disastrously” after Mr. Finkelstein became aware of financial improprieties and alerted authorities.

Mr. Capern said Mr. Finkelstein made no profit from his tipping, and has suffered reputational harm from the publicity the case generated. He said the bans requested by OSC staff are unnecessary to protect the capital markets from further wrongdoing because Mr. Finkelstein will never “do anything or be exposed to anything” in the future that would give him access to similar insider information.

OSC lawyer Donna Campbell, however, said significant penalties are needed because there was “egregious conduct” and tipping and insider trading “are at the severe end” of offences under Ontario’s securities law. She said Mr. Finkelstein was a securities lawyer and the other four men were registrants approved to work in the financial industry, so all knew the severity of misusing insider information.

“Each had a gate-keeping role and a responsibility to the capital markets,” she said.

She said the OSC is seeking the greatest penalties against Mr. Finkelstein and Mr. Azeff because they were at the core of the tipping and insider trading, and the wrongdoing wouldn’t have happened if they had not passed along or acted on the information.

The OSC panel ruled in March that Mr. Azeff, a former investment adviser at CIBC in Montreal, learned about deals from Mr. Finkelstein and passing along the tips to his business partner, Korin Bobrow, and to other clients and family members.

OSC lawyers are seeking total monetary penalties of $5.7-million from the five people named in the case – including $2.25-million from Mr. Azeff – as well as costs of $1-million to cover the OSC’s expenses and repayment of $120,000 in trading profits.

Lawyer Tyler Hodgson, who is representing Mr. Azeff and Mr. Bobrow, said the proposed fine of $2.25-million for Mr. Azeff is far beyond the $49,996 he personally earned from trading securities in advance of three takeover deals named in the case. He said a fine in the case should be far lower and linked to the size of the profits earned.

Mr. Hodgson said the most significant penalty, however, is the OSC’s proposal to ban Mr. Azeff and Mr. Bobrow from being registrants who can work in the securities industry. Both men are currently working at investment firm Euro Pacific Canada Inc., and want the OSC to instead order that they have to work under “strict supervision” by their employer for the next 15 years.


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