The RCMP will look into allegations of illegal insider trading involving a sudden stock drop in Taseko Mines, cases that are rarely prosecuted in Canada and can have an onerous burden of proof.
The Vancouver mining company has been the focus of a political uproar after questions about unusually heavy trading in its shares on Oct. 14 — about 2 1/2 weeks before the federal government blocked construction of its main mining project on environmental grounds.
The RCMP said Friday it will decide whether there’s sufficient evidence to warrant a full investigation into allegations of government leaks that may have allowed savvy traders to make money on wild swings in Taseko’s share prices on Oct. 14.
Lawyers said Friday that illegal insider trading and a related infraction known as tipping — divulging secret corporate information that can be used for stock trading — are difficult to prove under the Criminal Code.
It takes a “ginormous” amount of work to do such tasks as check stock prices and volumes and then find the individuals or institutions that bought and sold the stock, said Toronto litigator Alan Lenczner.
“Then you’ve got the problem with the proof,” said Lenczner, co- founder of Lenczner and Slaght.
The Crown has to prove that the allegation of insider trading was done beyond a reasonable doubt and with intent.
“It’s not just an inference you can draw,” Lenczner said, adding the challenge is to prove that the accused did it “with knowledge.”
The first Canadian to be convicted under federal laws that came into effect in 2004 was Toronto lawyer Stan Grmovsek, sentenced in January to 39 months in prison for his role in a massive scheme that netted him and a friend about US$9 million. It was the largest prison sentence for such an offence in Canada.
Illegal insider trading carries a maximum prison sentence of 10 years.
Individuals may also be prosecuted under provincial securities law, which has a less onerous burden of proof and lesser penalties for the convicted.
The British Columbia Securities Commission has said it was investigating the unusual trading activity at Taseko (TSX:TKO), which has its headquarters in Vancouver and has its major mining project in the province.
There have been no allegations that Taseko was involved in the leak and the scale of the trading — a total of 30 million one day in New York and Toronto — suggests there would likely be one or more investment funds involved.
Lenczner said if one person buys and sells stock with insider knowledge it’s not going to move the market much.
“It’s when you get a whole bunch of people reacting and either buying or selling something and the stock is boosted up or down — that’s what draws the attention of the exchanges because you’ve had a large movement in stock price.”
The possibility that the trading could be caused by human error or a computer glitch has been raised and hasn’t been disproved.
RCMP Cpl. Julie Morel said the allegations are being handled at this stage by the RCMP’s A division in Ottawa, which often handles matters of national and international interest, rather than the branch that deals with stock market cases.
The Mounties can’t discuss the specifics of the case as a matter of policy, Morel said.
Taseko has said it doesn’t know why there was such a high volume of trading in its shares on Oct. 14 or why the stock values swung so dramatically that day. The shares in Taseko opened on Oct. 14 at $6.97 and fell as much 34 per cent to a low of $4.58 — before rebounding to close at $6.21 the same day.
Securities lawyer Bernard Pinsky said fewer cases of insider trading are prosecuted in Canada than in the United States, where there’s a national securities regulator with a large enforcement budget.
“They’re much more determined to jail and make examples out of white collar criminals,” said Pinsky, head of the corporate finance and securities group at Clark Wilson in Vancouver.
Pinsky said even though companies try to keep announcements quiet, word can often leak out.
“It’s very, very, very difficult for companies to control information the way that would happen in a perfect world.”
Opposition MPs also called for the RCMP to investigate what they claim is evidence of an apparent leak from government circles ahead of the formal announcement.
Liberal MP Mark Holland, representing the Ontario riding of Ajax-Pickering, sent a letter to the RCMP requesting an investigation.
“As the integrity of the federal government and cabinet is a matter of serious public concern, it is in the interest of all Canadians that this matter be resolved,” Holland said Friday in his letter.
“I, therefore, request that you look into this case and determine whether or not there are grounds to launch a formal investigation.”
Last year, just 16 illegal insider trading cases were concluded by regulators across the country, compared with eight the year before and seven in 2007.