ATI Technologies Inc.’s chairman may or may not be found guilty of sidestepping a major financial loss via insider trading, but he certainly won’t face the full brunt of the law should allegations against him prove true, judging by the words of legal experts.
The Ontario Securities Commission (OSC) argues that when KY Ho was president of the Toronto-based graphics equipment manufacturer in 2000, he donated 254,000 shares to charities just before ATI’s stock price tanked on poor third-quarter results. The OSC says Ho knew the shares would plummet, while ATI’s investors were kept in the dark about the ensuing Q3 bomb until after Ho’s trade.
Thanks to his inside knowledge of ATI’s financial picture, the C$3.6 million (US$2.9 million) loss Ho avoided via donation is illegal, the OSC says. Ho has reportedly admitted no wrongdoing.
These days insider trading carries a potential $5 million fine and five-year jail stay. But according to OSC insiders, the penalties were lower — $1 million and two years — back when Ho is said to have made the trades.
The current laws don’t work retroactively, so Ho faces the lesser penalties, if any. “It’s a basic principle of law that you … cannot suffer a penalty that did not exist at the time of the offense,” said Mike Watson, the OSC’s director of enforcement.
According to Lawrence Wilder, a partner in Cassels Brock & Blackwell LLP’s securities practice, Ontario introduced stricter auditing and financial reporting guidelines in answer to the U.S. Sarbanes-Oxley Act of 2002, which spells out similar things for companies south of the border.
In the U.S., “Sarbox,” as it’s called, outlines how company audit committees should be structured, how familiar C-suite employees should be with their companies’ financial happenings, and it says executives have to pay bonuses they received during wonky reporting periods back to their employers.
Closer to home, Ontario is rolling in more rigorous laws, Wilder said. Some changes are here; others are on the way.
“The concept of civil liability for public disclosure has been introduced,” Wilder said. “It’s something new. It used to be you’d only have statutory civil liability if you did a prospectus and issued some securities. Now you can have liability if your press release is materially misleading and someone suffers damage; they can sue you.”
The new, higher penalties for insider trading came into effect mid-2003, said OSC spokespeople — well after Ho’s alleged transgression.
In 2003 the OSC alleged that ATI withheld financial information and lied to the Commission about just when company leaders realized Q3 2000 would be worse than expected. The OSC also alleged that Ho and various other ATI bigwigs traded company stock away when they knew, while the public didn’t, that the shares were about to take a hit.
Ho, ATI’s founder, stepped down from the CEO position last June. ATI agreed to settle with the OSC last month on a $900,000 payment. The Commission’s investigation of other ATI financial matters continues.