In Canada, Insider Trading Is Hard to Prove

CANADIAN security regulators are still in search of a home-grown Ivan Boesky. William Bennett, the former premier of the western province of British Columbia, his brother Russell, and Herb Doman, a self-made lumber tycoon, were all acquitted May 14 on charges of insider trading.

The charges arose from the $2.1 million profit (Canadian; US$1.8 million) that the Bennett brothers made in the trading of Doman Industries Ltd. The company was being taken over by Louisiana-Pacific Corporation of Portland, Ore. It was alleged that Mr. Doman had telephoned the Bennetts' office to inform them that the takeover bid had fallen through. Telephone records were produced in court to show a chain of calls, including the one made to sell the stock.

After those calls, the stock dropped by C$4 a share to $7.50.

But the judge ruled that the evidence was too circumstantial. ``It would be speculation at best and cynicism at least,'' said Judge Wallace Craig. And to give ``only a sinister connotation to such speculation would lead to a conviction based on suspicion.''

Canadian authorities are not having much success in convicting anyone on their charges of insider trading. Last year Peter Blaikie, a prominent lawyer and politician in Montreal, was acquitted of insider-trading charges brought by the Quebec Securities Commission.

``The laws are nebulous,'' says a prominent Toronto stockbroker, who asked that he not be named. ``There is a lot of talk about insider trading in Canada, but the laws are quite ineffective. Everyone knows it is going on.''

Getting a conviction is another story. Security regulators in Ontario have found a number of people who are suspected of ``front running.'' These are people who are institutional traders; they get a big order to buy stock, an order they know will push up the value of the stock involved. They then put in an order for their own account, before they put in the firm's order. One man charged with such an offense was fired by his firm - he was on the board of directors - but has not been convicted.

Lawyers feel there are difficulties with the way cases are presented. First they are criminal cases. To convict in a criminal case, there must be no doubt of guilt. It is perhaps easier to convict a person of insider trading in a civil suit.

``Circumstantial evidence, based on the transmission of knowledge, makes it difficult to prove a criminal case beyond a reasonable doubt,'' says Philip Anisman, a Toronto-based securities lawyer. He added that the United States Securities and Exchange Commission used civil suits in its early insider-trading cases. ``And they were lucky in finding people who would talk.''

The Toronto Stock Exchange handles more than 80 percent of the equity trading in Canada. The man in charge of that exchange's surveillance is Neil Winchester, who says he and his team are constantly on the lookout for suspicious trades. ``We do a lot of legwork to catch any heavy trading and to come up with the names of people doing the trading. If we come up with the name of an insider or a tipee, we pass those names on to the OSC [Ontario Securities Commission].''

While the names may be passed on, and some of the names even appear in the newspaper, there are few convictions. Records show that only one person has been charged and found guilty of insider trading in the last decade, and that was a relatively minor office.

Meanwhile, the Bennett brothers may have to go back to court. Their trial was in Vancouver, British Columbia, their home province, but the trading was done in Toronto. They may still have to face trial in Ontario, which has stricter securities laws than does British Columbia.

And the Canadian Broadcasting Corporation pension fund, which bought most of the Doman shares from the Bennetts, filed a suit May 1 against the Bennett brothers and Doman. It is a civil suit, a case in which circumstantial evidence might play a bigger role.