The sanctions levied against a former Bay Street lawyer for insider tipping are part of a bigger trend of awarding higher penalties for securities transgressions, a Toronto lawyer says.
This week, a panel at the Ontario Securities Commission ordered former Davies Ward Phillips and Vineberg LLP lawyer Mitchell Finkelstein to pay $450,000 in administrative penalties and $125,000 in costs of the proceeding after he was found guilty of insider tipping on three different occasions.
Finkelstein also received a 10-year-ban from trading and acquiring securities, with the exception of doing so for select registered accounts.
“There seems to be a general trend at the OSC and other securities regulators to order greater [amount] of administrative penalties and cost awards particularly in the last five years,” says Osler, Hoskin & Harcourt LLP partner Shawn Irving.
In March, an OSC panel found Finkelstein had tipped his friend, an investment adviser at CIBC, about impending takeover deals. That friend, Paul Azeff, then purchased shares associated with those deals and recommended his friends and family do the same, the commission found.
“As the instigator of the subsequent insider trading by others in disregard of his duties of confidentiality and of the high standard of probity towards the capital markets expected of a mergers and acquisitions lawyer, Finkelstein’s transgressions must be considered to be at the upper end of severity,” wrote commissioners Alan Lenczner and AnneMarie Ryan.
Securities regulators are “certainly of the view that the imposition of administrative penalties and significant cost awards can serve an important deterrent role,” Irving says, but “I’m not convinced of that.”
An approach that focuses on getting securities offenders off the streets sooner is a better approach, Irving adds.
“In so many of these cases, years and years and years pass between when the alleged breach is alleged to have occurred and when there’s ultimately a hearing and then a decision,” he continues. “All the while, the alleged offenders are able to continue to act.”
Irving adds the impact of prompt prosecution on the personal and professional reputation of transgressors, coupled with strong market prohibitions, can have a far greater deterrence effect than steep fines.
In Finkelstein’s case, OSC enforcement staff had sought a lifetime trading ban, a lifetime exclusion as a director and officer of a reporting issuer, and an administrative penalty in the amount of $1.5 million. The ultimate award reflects the panel’s attempt to strike a balance, according to Irving.
The panel was also cognizant of the respondents’ personal situation, says Irving.
“In the case of Mr. Finkelstein, the panel certainly took into account his age, that he had a young family, the significant professional and reputational damage the proceeding and the decision had on him, and the fact that it was unlikely he’d ever work in a major law firm again and therefore he would have a significantly diminished earning potential,” he says.
Finkelstein’s lawyer Gordon Capern did not immediately respond to a request for comment but reports say his client plans to appeal the OSC panel’s findings as well as the sanctions.