The Ontario Securities Commission has scheduled a hearing to consider insider trading allegations against Michael Zhao, a 28-year-old former investment banking analyst with BMO Nesbitt Burns.
The OSC is alleging that between June 2010 and December 2011, Zhao was in possession of undisclosed information about pending takeovers involving Menu Foods Income Fund, Consolidated Thompson Iron Mines Ltd., Forzani Group Ltd., Pacific Northern Gas Ltd., and Canmarc REIT.
According to the OSC, he was hired on July 5, 2009 to work in the media and communications group of BMO's investment and corporate banking division.
While allegedly in possession of undisclosed information, Zhao directed the purchase of securities in the five reporting issues ahead of the public announcement of the M&A transactions.
These securities were allegedly parked in an online brokerage account with TD Watherhouse that was allegedly held by a family member.
After the transactions were publicly announced, Zhao directed the sale of the securities, to earn a profit in the family account of approximately $416,000, according to the OSC allegations.
The OSC says that as a result of his position at BMO, Zhao was a person in a special relationship with the five reporting issuers. He thereby engaged in illegal insider trading by directing the shares to be bought while he was in possession of the undisclosed information.
The OSC hearing is scheduled for May 17, 2013 in Toronto.
The allegations:
Menu Foods Income Fund announced on August 9, 2010 that Simmons Pet Food Inc., an affiliate of Simmonds Foods Inc., had entered into a definitive agreement to acquire Menu Foods for approximately $239 million.
Between June 16, 2012 and June 22, 2010, Zhao had 24,000 units of Menu Foods purchased at a cost of $86,549 in the family account for an average of $3.61.
On August 9, the day of the takeover announcement, Zhao had the family account sell its position at an average price of $4.72 per unit.
On January 11, 2011 Cliffs Natural Resources (NYSE: CLF, Stock Forum) announced that it had reached a definitive agreement with Consolidated Thompson to acquire all of its shares in an all-cash deal worth $4.9 billion.
Between January 10, 2011 and January 11, 2011, Zhao had the family account purchase 16,500 shares at a cost of $218,280, at an average price of $13.23.
He later sold the shares in two tranches on January 18, 2011 and January 24, 2011 for an average of $17.29 per share.
On May 9, 2011 Forzani Group announced that it would be acquired by Canadian Tire Corp. Ltd. (TSX: T.CTC.A, Stock Forum) for $26.50 a share in cash.
On May 6, 2011, Zhao had the family account purchase 11,500 shares of Forzani at an average price of $18.18.
He later sold those shares in two separate tranches On May 9, 2011 and Jun 1, 2011 for $26.22 per share and $26.41 respectively.
On October 31, 2011 AltaGas Ltd. (TSX: T.ALA, Stock Forum) announced it had struck a deal with Pacific Northern in which AltaGas would acquire all of the issued and outstanding shares of Pacific Northern for $36.75 cash per share.
Between October 25, 2011 and October 28, 2011, Zhao had the family account purchase 7,500 shares of Pacific Northern for a total of $222,296, at an average price of $29.64 per share.
On November 28, 2011, Cominar Real Estate Investment Trust (TSX: T.CUF.UN, Stock Forum) announced its plan to acquire all units of Canmarc in an all-cach offer of $15.30 per unit.
Between November 11, 2011 and November 21, 2011, Zhao had the family account purchase 60,000 units of Canmarc at a cost of $814,400 at an average price of $13.57 per unit. On January 26, 2012, Zhao had the family account sell its total position of 60,000 Canmarc units for an average price of $16.52.
From these transactions, Zhao is alleged to have earned a profit of $416,000.