Insider trading in Canada - for a pittance
At last, an insider-trading scandal Canada can call its own. It has everything. People with high political appointments ruining their careers, trusted lawyers accused of cheating, and a businessman tipping off his wife to buy shares. The only thing it doesn't have is pots of money. It seems the Canadian versions of Ivan Boesky have sacrificed themselves for a pittance.
Peter Blaikie is the main person charged in an insider-trading investigation in Canada. It is alleged that Mr. Blaikie and others used their knowledge of the coming privatization of Teleglobe Canada to make money. Blaikie was once a candidate for the leadership of the Progressive Conservative Party, Prime Minister Brian Mulroney's job.
The Quebec Securities Commission charges that Blaikie and six others bought shares of a small company called Memotec Data Inc., which was the surprise winner in the privatization auction of Teleglobe. The company handles overseas telephone and telex communications from Canada. It is a clean moneymaker and many companies were eager to own it, including Bell Canada, the country's biggest phone company. Memotec, a small Montreal-based high-tech firm, won with a bid of $488 million on Feb. 5.
Blaikie, whose firm, Heenan Blaikie, includes former Prime Minister Pierre Trudeau as a partner, was handling legal work for Memotec and bought 1,000 shares of Memotec stock at $10.50 a share Jan. 16. The stock closed at $20 a share on Feb. 11 after the deal was successfully done. Memotec made its announcement to bid for Teleglobe on Feb. 5. If he sold at the high - and there is no information on when he sold - Blaikie would have made less than $10,000.
For that sum Blaikie and others face a fine of a $1 million and up to two years in jail. Although the Memotec stock trades on both the Montreal and Toronto exchanges, the rules are tougher in Quebec. So the Ontario Securities Commission stepped aside and let Quebec do the job. Also most of the transactions were done on the Montreal exchange.
``Every time an important transaction is announced, the commission's investigators go to work to determine if there are suspicious links between the stock market activity and the persons involved,'' said Jacques Labelle, director of legal services at the Quebec Securities Commission. ``What we're trying to establish is that the directors of a company have to be very prudent.''
Canada's financial community was surprised at the naivet'e of the people involved in the Memotec deal. ``Even though Blaikie bought before the deal was announced, advisers usually have strict rules about owning shares in the firms they are dealing with,'' said one investment banker who worked on the Teleglobe deal.
For a time, Blaikie was not available for comment, but a law partner, Jean Potvin, defended him in a television interview. ``Mr. Blaikie's honesty and integrity leave no doubt in the mind of anybody, and we're confident that a court of law will recognize this,'' said Mr. Potvin, adding, ``There was nothing reprehensible about the whole transaction.''
Earlier this week, Blaikie himself denied he is guilty of insider trading. ``What is outrageous is that the Quebec Securities Commission, through its chairman and through its other representatives, has decided to make a trial in the media,'' he said.
Paul Guy, the chairman of the Securities Commission, said he was mystified by Blaikie's outburst, saying his agency followed normal procedures, naming names and giving details. ``We have always given explanations, and that is normal. The same procedure was followed in the Boesky case,'' said Mr. Guy.
Blaikie admitted buying the shares Jan. 16. He said he still owns them.
Memotec president William McKenzie said the company wanted to make its bid for Teleglobe public Jan. 9 but was stopped by the government, which wanted it kept secret.
Other people charged in the investigation include another Heenan Blaikie partner, Kenneth Atlas, who bought only 300 shares. Three directors of Memotec have also been charged, as has a former vice-president of the Alberta government telephone company.
It was a pricey speculation for Blaikie, whose political connections in Ottawa had landed him on the board of directors of the Canada Development Corporation, a government holding company. The former national president of the Progressive Conservative Party resigned that job Friday, less than a month after he was given it.
This insider-trading row is the latest in a long series of money-related scandals to tarnish the Mulroney government. Each time the government comes out with a piece of good economic news, another scandal ruins the effect.