Canada: In-House Counsel And Insider Trading: What Can We Learn From Recent Case Law?

Two recent insider trading cases involving internal counsel, one on each side of the border, serve as a reminder of the high standards to which regulators hold internal counsel, and the importance of robust insider trading policies.

In both of these cases, the internal counsel were regularly given access to material non-public information (MNPI) as part of their roles. Both also either had direct oversight of, or were involved in administering, the issuer’s trading policies. The combination of access to MNPI and involvement in trading policies in both cases created a heightened possibility for risk of insider trading.

Timeline of events: Volk and Frontera

  • In June 2018, the Ontario Securities Commission entered into a settlement agreement with Peter Volk, who was the long-standing general counsel to Frontera Energy Corp. (at the time Pacific Rubiales Energy Corp.), a Canadian issuer. At issue was Volk’s purchase of certain unsecured notes issued by Frontera in February 2015.
  • Prior to Volk’s purchase, Frontera had been entertaining discussions with two separate parties about a potential acquisition. The transaction process commenced in October 2014, with the receipt of a non-binding letter of intent from ALFA S.A.B. de C.V. Initial discussions with ALFA did not result in the execution of confidentiality agreement.
  • Frontera was later approached in December by Harbour Energy Ltd., who executed a confidentiality agreement to enable it to commence due diligence. ALFA returned in February 2015, and executed its own confidentiality agreement.
  • After separate discussions with both parties culminated in each advising that they would not propose a transaction without a partner, Frontera introduced ALFA and Harbour so they might consider a joint offer in March 2015.
  • A non-binding letter of interest was provided by ALFA and Harbour in April, and an acquisition agreement was signed in May. However, the joint bid was ultimately withdrawn and no acquisition occurred.

The OSC’s concerns

Volk had oversight of Frontera’s insider trading policy, including responsibility for implementing trading black-out periods for the issuer. Volk did not impose a black-out in respect of any of the non-binding discussions with either Harbour or ALFA until March 2015, following ALFA and Harbour’s joint expression of interest. Volk made his black-out decisions in the good faith belief that the information that ALFA and Harbour were engaged in, including due diligence and discussions with management, was not material. Against this backdrop, Volk acquired approximately $75,000 of senior unsecured notes in February 2015.

In the Agreed Statement of Facts, the parties agreed that on the date of his purchase, Volk was aware that:

  • there had been a non-binding expression of interest from Harbour (which lacked material terms, including price);
  • discussions with Harbour were ongoing; and
  • ALFA had executed a confidentiality agreement and been granted access to conduct due diligence.

However, there was no agreement between Frontera and either party about deal terms, nor any certainty that a transaction would materialize with either party and indeed, none did. Volk admitted that as general counsel and the person responsible for implementation of Frontera’s insider trading policy, he “was in a position of high responsibility and trust and was subject to a high professional standard to avoid any appearance of conflicts of interest and any appearance of misuse of confidential information.” He also admitted that the prudent course would have been to refrain from purchasing the notes. However, there was no admission that Volk had contravened insider trading prohibitions, rather, the OSC pursued this settlement on the basis that Volk’s conduct was contrary to the public interest.

The facts in Re Volk are grey—as is common in cases involving allegations of insider trading. What appears to have compelled Staff at the OSC to pursue enforcement is the fact that Volk was an experienced internal counsel, who was responsible for the implementation of Frontera’s insider trading policy. The settlement agreement notes the fact that Volk “self-assessed” that he had no knowledge of any MNPI. That Volk was required to both dictate the black-out periods and comply with them likely informed Staff’s enforcement decision.

Levoff and Apple

In February, the U.S. Department of Justice and the SEC commenced criminal and civil proceedings, respectively, against former Apple Inc in-house counsel Gene Levoff. It is alleged that Levoff earned approximately US$227,000 in profits and avoided US$377,000 in losses as a result of trading prior to Apple disclosing its financial results. Levoff was a senior counsel at Apple, and sat on its Disclosure Committee. The criminal complaint against Levoff alleges that he used information obtained through Apple’s disclosure process to trade during black-out periods at brokerage accounts he had not disclosed to Apple.

The claims against Levoff are unproved but serious. Like Volk, Levoff was responsible for Apple’s insider trading policy. He was in a position of significant trust at Apple, with ready access to MNPI in his role on the Disclosure Committee.

Transparency remains key

Although the facts of these cases differ, the pursuit of claims against Volk and Levoff by regulators illustrates the high standard expected of internal counsel. In light of these high expectations, businesses should ensure that their insider trading policies are robust, and that such policies (and the enforcement of them) take particular account of individuals within businesses who regularly have access to MNPI, including internal counsel. The responsibility for administering insider trading policies can provide opportunities for misuse of MNPI, and regulators can be expected to hold those taking on these responsibilities to a higher standard. In order to ensure insider trading policies contain sufficient checks and balances, businesses may also wish to consider tasking more than one individual with oversight of such policies, including the imposition of black-out periods.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions