The Ontario Securities Commission has accused two former employees of TD Waterhouse Canada Inc. of illegal insider trading and tipping, alleging they urged family members and clients to buy shares of Masonite International Corp. after learning about the company’s pending takeover in 2004.
The OSC said Howard Miller and Man Kin Cheng, also known as Francis Cheng, recommended Masonite shares to dozens of clients and bought shares themselves after learning in November, 2004, that Masonite had negotiated a deal to be acquired by a subsidiary of U.S. hedge fund Kohlberg Kravis Roberts & Co.
The commission alleges the men and their clients owned 68,900 shares of Masonite worth $2.35-million by the time Masonite announced the acquisition on Dec. 22, 2004. KKR agreed to pay $40.20 per share for Masonite, a 20-per-cent premium to the share price in November.
The commission did not explain how Mr. Miller and Mr. Cheng – who worked in the same office at the time, but are no longer employed by TD Waterhouse – allegedly learned of the pending deal, saying only that Mr. Miller found out from someone he knew.
Neither man could be reached for comment on Wednesday.
According to the OSC, Mr. Miller sent an e-mail to a client on Nov. 24, 2004, saying he had a tip that Masonite was facing a “cash takeover of $40” and that the timing “should be before Xmas but you never know with lawyers.”
The commission alleges the e-mail demonstrated Mr. Miller knew the takeover price, the fact the deal would be structured as an all-cash offer, and that it would be announced before Christmas.
The OSC said Mr. Miller personally made a profit of $53,500 by buying Masonite shares for his account and his wife’s account, but also recommended the shares to four relatives and two friends, and encouraged 21 clients to buy $1.02-million worth of Masonite shares prior to the deal’s announcement.
The OSC said Mr. Cheng and his family realized a profit of $58,300 on their shares.
Mr. Miller currently works at Raymond James Ltd., while the OSC said Mr. Cheng is not currently registered to work in the investment industry.
An OSC hearing in the case is scheduled for Oct. 18.