May 21, 2013
In its April 2013 decision in Re Stan, the Alberta Securities Commission provides issuers with a practical approach to the assessment of both a “material fact” and general disclosure to the public:
BACKGROUND
Staff of the Alberta Securities Commission alleged that six insiders participated in insider trading of the shares of Grande Cache Coal Corporation, a publicly traded coal mining and production company in violation of section 147(2) of the Alberta Securities Act. The Staff further alleged one of the accused also violated sections 147(3) and (3.1) of the Act by disclosing non-disclosed information to his wife (also accused of insider trading) and encouraging her to sell Grande Cache shares.
The Staff had to establish the following facts to prove the insider trading allegation:
The Commission focussed on the question of whether the “alleged material facts” were material facts that were not generally disclosed. The Act defines materiality as, “a fact that would reasonably be expected to have a significant effect on the market price or value of”.
The Staff argued that:
The Staff argued that the accuseds’ failure to disclose this material fact, coupled with their trading activity, amounted to insider trading.
COMMISSION’S DECISION
The Commission applied the test of what would reasonably have been expected to transpire and cautioned against using hindsight in the assessment of materiality, and disagreed with the Staff on all accounts:
The Commission concluded the accused disclosed the alleged material facts when the trading activity occurred, and dismissed all of the allegations.
Click here to read the Alberta Securities Commission’s decision in Re Stan.
A PRACTICAL “MATERIALITY” TEST
Re Stan provides market participants with a practical approach to assessing and determining “materiality”:
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Corporate Finance and Securities Team to discuss this topic or any other legal issue.
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