TheOntario Securities Commission (OSC) is comparing the "tipping" offences ofAndrew Rankin to multi-million-dollar investment and health-care frauds andeven multiple armed robberies, in arguing the former investment banker shouldreceive a penitentiary sentence.
The
OSC is seeking a term of three to five years in prison for Rankin, in written
submissions filed with provincial court Justice Ramez Khawly before a
sentencing hearing scheduled for Oct. 19. The maximum penalty for "tipping"
under the Securities Act — Rankin was charged under the previous act, since his
offences occurred in 2000 and 2001 — is two years in jail or a fine of up to $1
million for each offence.
Rankin,
40, a former managing director of the mergers and acquisitions unit of RBC
Dominion Securities was convicted by Khawly in July of 10 counts of "tipping"
in breach of the provincial Securities Act. He was acquitted of 10 counts of
insider trading, after a widely publicized trial.
The
judge found Rankin provided a series of tips on companies involved in upcoming
takeover deals, where RBC was retained as an advisor, to his long-time friend
Daniel Duic. Duic used the tips to make a net profit of at least $4.4 million
in stock trades in 10 Canadian companies between February 2000 and February
2001.
After
one unusually large trade prompted an investigation by the OSC, Duic retained
The
deal required Duic to pay just over $3 million in the form of a penalty, taxes
and lawyer's fees and to testify against Rankin. When the deal with Duic was
approved by the OSC in March 2004, its vice-chairman Paul Moore said it was "in
the public interest." Michael Watson, the director of enforcement at the OSC
said at the time, "we think we made the choice that better protects the
marketplace."
There
was no evidence at trial that Rankin participated in any of the trades,
directly profited from Duic's illegal activities, or was even aware of the
scale of his friend's trading.
"Duic
had the last laugh. He not only made the millions and enjoyed the fruits of his
illegal activity, but even now he continues to win," said Khawly in his July 15
judgment. The judge was sharply critical of Rankin's testimony during the
trial, but also suggested that he was coerced by his friend into providing
inside information and "underestimated Duic's greed and deceit."
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The
longest sentence ever imposed for a Securities Act offence of insider trading
is six months in jail and a $2-million fine. Glen Harper, the chairman of
Golden Rule Resources Inc., was found to have avoided $3 million in stock
trading losses in his company by failing to disclose material information.
Tipping
is more serious than insider trading, suggest lead OSC prosecutor Kelly McKinnon
and her colleagues Greg MacKenzie and Michael Code (who was retained by the OSC
to assist with the Rankin prosecution), in the sentencing submission.
"The
potential harm to markets and investors may be greater when an insider tips,
rather than trades, as the leak of information results in the spread of
confidential information with the risk of multiple instances of insider
trading," argues the OSC.
The
argument is "inconsistent with common sense," says Brian Greenspan, who
represents Rankin. The commission is trying to suggest that "one feature" of
insider trading "is more serious than the evil to be prohibited."
The
OSC also fails to refer to recent Criminal Code amendments which created new
insider trading and tipping offences. Insider trading carries a maximum penalty
of 10 years. Tipping is a hybrid offence, with a maximum sentence of five years
if the Crown proceeds by indictment. The Criminal Code offences include a mens
rea component, which the OSC was not required to prove in the Rankin case since
tipping under the Securities Act is a strict liability offence.
The
OSC cites a number of cases of investment fraud under the Securities Act as
well as criminal frauds in support of its sentencing position. They include a
doctor who defrauded the provincial health care plan of more than $1 million
and an accounting manager who stole more than $2 million from his employer. In
both cases, the defendant received sentences that were lower than what the OSC
is seeking against Rankin.
"Though
fraud carries a more severe maximum term of imprisonment than tipping, these
cases are instructive with regard to the proper sentencing approach," says the
OSC in its submission. "Fraud cases stress the aggravating nature of the abuse
of trust, the appropriateness of public denunciation, and the centrality of
general deterrence in determining a fit sentence," the OSC argues.
A
1946 ruling involving three armed robberies is also cited as authority for
imposing consecutive sentences against Rankin for each of his tipping offences.
The
OSC's submissions "ought to be ignored," says Greenspan. "To compare tipping to
criminal fraud is preposterous." He adds that the principles of general
deterrence have already been satisfied.
"He
has been hugely punished. He has lost his career of choice," says Greenspan,
who compared it to a lawyer being disbarred.
Rankin
was earning over $1 million annually when he was fired by RBC in 2001 and he no
longer works in the financial services industry. The former investment banker
was a rising star at RBC and the court heard that his supporters included
Gordon Nixon, who is now its chief executive officer.
The
OSC submission makes numerous references to changes in Securities Act penalties
since Rankin committed his tipping offences and also to recent speeches about
the damage caused by insider trading.
"One important principle of penal law is
notice," says Scott Hutchison, a civil litigator at Stockwoods, who was
previously a senior Crown attorney. "People should have fair notice of the
penalty for any possible misconduct. That is why the Charter guarantees the
benefit of a lesser penalty if the governing statute changes between the time
of the offence and the time of sentencing."