Administrative law – Decisions of administrative tribunals – Securities Commission – Stock brokers – Disciplinary proceedings – Penalties – Judicial review – Evidence – Compliance with legislation
Walton v. Alberta (Securities Commission),  A.J. No. 909, 2014 ABCA 273, Alberta Court of Appeal, August 29, 2014, P.W.L. Martin, F.F. Slatter JJ.A. and R.E. Nation J.
This case involved five appeals brought by five applicants against a decision of the Alberta Securities Commission (the “Securities Commission”) in Re Holtby, 2013 ABASC 45. In that case, the five appellants were among a number of individuals who were charged and found guilty of insider trading, and other various improper conduct, with respect to the trading in shares of Eveready Inc. prior to the company’s takeover. The five appellants appealed the findings and sanctions imposed by the Securities Commission.
The Securities Commission alleged that John Holtby, who was the founder and director of Eveready Inc. and one of the applicants, disclosed to others that Clean Harbors Inc. intended to take over Eveready Inc., and that these individuals allegedly used this information to trade in Eveready Inc. shares prior to the press release about the takeover. The others accused included friends, family members and business colleagues of Mr. Holtby, all of whom benefited from their trading of Eveready Inc. shares prior to the takeover.
The main breaches alleged against the appellants fell into three broad categories:
- trading in the shares of the reporting issuer with knowledge of a material fact that has not been generally disclosed (“insider trading”);
- disclosing the material fact to others, before the material fact has been generally disclosed, (“tipping”); and
- recommending or encouraging others to trade in securities of the reporting issuer before the material fact is generally disclosed.
The Securities Commission found that Mr. Holtby had engaged in insider trading and improperly disclosed the material fact of the transaction to others, and that he and others were culpable of tipping and encouraging others to purchase shares of Eveready Inc. prior to the public announcement of the takeover by Clean Harbour Inc. The Securities Commission ordered sanctions against five of the individuals charged under the Alberta Securities Act, including disgorgement of profits, administrative penalties and costs, and prohibitions from trading in securities. The sanctions against the individuals were significant, totaling 2.8 million dollars.
The Alberta Court of Appeal (the “Court) heard appeals by Ms. Walton, Mr. Holtby, Mr. Burdeyney, Mr. Kowalchuk and Mr. Shepert. Despite the fact that the Court had less expertise than the Securities Commission, the Court overturned the decisions against Ms. Walton, Mr. Burdeyney, and Mr. Shepert, and overturned all the sanctions that the Securities Commission imposed on the five appellants. The sanctions against Mr. Holtby and Randal Kowalchuck were set aside and remitted back to the Securities Commission for reconsideration.
Of particular note, the Court held that despite the Securities Commission’s expertise and the deference normally afforded to them, the Securities Commission improperly interpreted a rarely used provision in the Securities Act, improperly relied on speculation and conjecture in making its decisions and improperly imposed excessive sanctions without transparency and justification. To this end, the Court noted that it appeared the Securities Commission may have overemphasized general deterrence in this case, at the expense of individual circumstances of the accused.
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