The "Chain of Tipping": Andrew Gray and Rebecca Wise Discuss Insider Trading and Finkelstein in the Financial Post

Insider trading allegations often involve more than one “tippee” receiving leaked information—a tippee tells another tippee, who tips off someone else, and so on. But how do courts treat tippees at various levels of the chain?

Finkelstein v. Ontario Securities Commission is an Ontario Court of Appeal decision that is groundbreaking in the light it sheds on the “chain of tipping.” Partner Andrew Gray and senior associate Rebecca Wise’s commentary on the January 25 ruling is featured in a Financial Post story. An excerpt from the story is below.

In the case, which now stands, the OSC found that former Davies Ward Phillips and Vineberg lawyer Mitchell Finkelstein had passed material non-public information about pending mergers and acquisitions deals to his friend and investment advisor Paul Azeff, who then told a Montreal accountant identified only by his initials, L.K. The accountant then passed the information to Howard Miller, an investment adviser who worked in Toronto, who in turn passed it to Cheng, an associate at the same firm.

The OSC panel concluded that based on a consideration of factors, including the short lapse in time between the tippee receiving the information and initiating a trade, and the absence of steps taken to verify the information before trading, an inference could be made that both Miller and Cheng believed or “ought to have known” the source of the information was in a special relationship with the company.

Andrew and Rebecca’s insights from their January 29 piece “Insider Trading and Tipping: Ontario Court of Appeal Helps Set Limits” included in the article speak to the cautionary implications of Finkelstein, saying the ruling “serves as a warning to anyone trading in securities to make reasonable inquiries before using a tip.”

“If there is any doubt as to whether the information at issue is MNPI (material non-public information) and originated from a person in a special relationship with the issuer, no use should be made of the information and it should be kept confidential,” they said.

Get more updates from Andrew and Rebecca on the OSC’s approach to managing insider trading in “Proposed Changes to OSC Whistleblower Program.”

Learn more about our litigation and dispute resolution expertise by visiting the practice page.