Ontario’s New Capital Markets Tribunal Weighs Circumstantial Evidence in Insider Trading Ruling – Securities

Under Ontario Securities Law (the Act), a court must be satisfied that (i) a person having a “special relationship” with an issuer (ii) bought or sold the securities of the issuer (iii) with knowledge of a fact or a material change and (iv) that the fact or change was not generally disclosed. And while in Ontario a court need only be satisfied of these elements on the civil standard of “balance of probabilities” (rather than the criminal standard of “beyond a reasonable doubt”), those responsible for securities law enforcement are challenged to definitively prove insider trading.

In Canada and the United States, Securities Commission staff must often rely on circumstantial evidence rather than direct evidence to prove insider trading and tipping allegations. The precedents suggest that given the elusiveness of direct “knowledge” evidence, adjudicators can draw inferences from this circumstantial evidence. Nevertheless, as a recent case reminds us, in order for Staff to meet its burden of proof in this proceeding, these inferences must be “reasonably and logically drawn from a fact or group of facts established by the evidence , should be drawn from the combined weight of the evidence, and cannot be drawn from speculated facts. »1

As we reported this spring, the Ontario Securities Commission (OSC) was recently restructured to separate its regulatory and adjudicative responsibilities, which included the launch of the new Capital Markets Tribunal. In one of its first reported cases, on May 26, 2022, a panel of the Capital Markets Tribunal (Tribunal Panel) rendered its decision in Kitmitto (D)2022 ONCMT 12, a proceeding involving alleged insider reporting and trading in the securities of an issuer (the Issuer) in connection with an acquisition (the Acquisition). Written with a separate decision dissenting in part, the court panel found that the staff failed to prove part of their case, but the majority found that they failed to prove the insider and insider claims. transactions against some of the named respondents, and agreed that Staff would rely on circumstantial evidence to prove these allegations.


Allegations of insider information and trading in Kitmittolinked to a group of individual respondents, most of whom knew each other and had close relationships.

Staff alleged that beginning April 25, 2014, Majd Kitmitto (Kitmitto), one of the Respondents, became aware of material non-public information (MNPI) about the issuer. Staff alleged that between April 25 and June 12, 2014 (the relevant period), this MNPI was shared among various people and that there was insider tipping and trading, contrary to the article 76 of the Act. Staff also alleged that some Respondents had misled Staff contrary to paragraph 122(1)(a) of the Act, and that a Respondent had concealed transactions from his employer, which implicated a principle Director of Law and was abusive.


Although the tribunal panel concluded that the staff had failed to prove several of the allegations and dismissed some of these allegations, the majority of the tribunal panel concluded that Kitmitto had unlawfully “indicated” a number of alleged traders, who then traded inside information and/or tipped others during the Relevant Period. However, one panelist — the recently appointed chair of the OSC’s new board — dissented in part.

First, the majority considered whether the relevant information at issue about the acquisition was MNPI. In particular, the tribunal panel rejected staff’s argument that Kitmitto received MNPI on April 25 and 28, 2014, on the grounds that the only information Kitmitto had at that time was information about a “potential transaction.” and that the issuer was “considering a strategic transaction.”2 The full court panel disagreed with staff and argued that information about a “potential transaction” did not constitute MNPI.

The majority of the tribunal panel found that Kitmitto was made aware of MNPI, but only after he attended a meeting with the issuer’s management, during which he learned of particular details of acquisition. During this meeting, Kitmitto received a deck of slides that revealed specific information, including

  • the expected purchase price and details of funding sources

  • the specific breakdown of equity and debt financing

  • the involvement of several major financial institutions in the transaction

  • a calendar indicating the precise date of the announcement3

Based on the details known at that time, the majority of the panel of the tribunal concluded that the “chain of tipping” with respect to the MNPI continued from that time.

In their extensive reasons, the majority assessed the evidence presented by Staff in support of their allegations against each Respondent and ultimately concluded that some Respondents had engaged in insider information or trading contrary to the Act. . The majority acknowledged that some of the relevant evidence was circumstantial, including that these respondents had the
opportunity to learn more about the specific details of the acquisition and that their dealings on the issuer were “timely, unusual and profitable.” The majority considered several factors, including information available in the public sphere, the trading history and habits of each respondent, their experience in the issuer’s relevant industry, and the timing of communications between respondents in relation to the schedule of developments related to the Acquisition. The majority also reported unusual conduct by particular respondents in order to complete the transactions, such as repaying the advance on a line of credit to acquire more shares.

In her view, the dissenting member concluded that Staff had failed to substantiate any of her allegations on a balance of probabilities. The dissenting panel member questioned the sufficiency of the circumstantial evidence he relied on, concluding that there were other equally likely inferences that could be drawn from the combination of such evidence.

The definition of MNPI, and whether uncertain or contingent information can constitute MNPI, was also disputed between the majority and dissenting panelists. The majority concluded that Kitmitto was in possession of the issuer’s MNPI on April 29, 2014, due to considerable indications of interest in the transaction at the time and the details of the transaction that were revealed to Kitmitto. In contrast, the dissenting panel member stated that due to the uncertainty of the information and the fact that many conditions remained to be met, the information known to Kitmitto did not constitute MNPI.

On June 21, 2022, the Court order [PDF] that a hearing regarding penalties and costs is to be heard on October 11 and 13, 2022.

Take away food

The divergent approaches taken by the majority and the dissent highlight issues related to the quality of evidence required to establish insider trading in administrative enforcement proceedings in Canada: When is circumstantial evidence acceptable? To what extent can it support a finding that the insider trading and disclosure provisions of the Act have been violated? These questions have been difficult on both sides of the border — notably, a recent court ruling in the United States challenged the Securities and Exchange Commission’s circumstantial business evidence, as noted in a previous blog post.

Although the majority of the Tribunal Committee in Kitmittowas comfortable relying on circumstantial evidence for his conclusions that certain insider tips and trading had taken place, he emphasized that an opportunity to learn more about MNPI alone is not enough to prove insider trading or tipping. Rather, these possibilities should be considered in conjunction with supporting evidence of timely, unusual and profitable trades. The dissenting panelist went further by specifically stating that trading volume, timeliness or profitability are not determinative factors in insider disclosure and trading cases, and challenged several inferences drawn by the majority on the basis of the evidence presented by staff.

The discovery of insider trading can cause irreparable damage to an individual’s professional and personal reputation. It will be interesting to see whether the Capital Markets Tribunal takes up dissenting reasons in future insider disclosure and trading cases, and how staff deal with what may be seen as an increased burden of proof to prove these complex claims.


3. Same in para. 185.

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