By NIALL MCGEE
Saturday, June 16, 2018
Former star Bay Street money manager Ben Cheng was ordered to pay a $400,000 fine and banned from working at a senior level in the Canadian securities industry for six years, in an insider-trading settlement approved Friday by the Ontario Securities Commission (OSC).
Mr. Cheng, former president of Aston Hill Financial Inc., admitted he broke Canadian securities laws by leaking confidential information about online gambling company Amaya Inc.'s US$4.9billion takeover of the owner of PokerStars in 2014.
The OSC's civil settlement with Mr. Cheng comes a little more than a week after a Quebec judge threw out a quasi-criminal case alleging tipping and illegal insider trading by David Baazov, Amaya's founder and former chief executive officer, around the same transaction. The case was stayed after a series of procedural blunders by Quebec's securities regulator, the Autorité des marchés financiers, which brought the allegations against Mr. Baazov.
On Friday, during the OSC settlement hearing, Mr. Cheng admitted that he tipped John David Rothstein, a former national sales manager with Aston Hill, about the Amaya takeover transaction days before it was announced in June, 2014. Mr. Cheng also encouraged Mr. Rothstein, to share the information with others.
While under oath, Mr. Cheng also misled the OSC in its investigation of him. Furthermore, he informed Mr. Rothstein and another respondent about details of the OSC's investigation, despite signing a confidentiality agreement that forbade him from doing so.
This is the first time the OSC has imposed an administrative fine for tipping only. Previously, the regulator has doled out administrative penalties in cases involving tipping and illegal insider trading as a dual offence. In this particular instance, Mr. Cheng himself did not personally trade in shares of Amaya and did not personally benefit.
In an interview, OSC director of enforcement Jeff Kehoe made it clear that the regulator views tipping alone as a serious offense.
"We think it sends a strong [deterrence] message," Mr. Kehoe said. "Tipping is very serious misconduct and where we find it, we will impose serious consequences," Mr. Cheng's fine comprises an administrative penalty of $350,000 and $50,000 in costs. He is prohibited from working as an officer or director of a publicly traded Canadian company for six years and is not allowed to manage money as an OSC registrant in Ontario.
In submissions at the hearing on Friday, Mr. Cheng's counsel, Shara Roy, partner with Lenczner Slaght, said that he had suffered "severe career consequences" since the OSC's allegations were made public last year and has had to endure the notoriety of media coverage about the case.
"Mr. Cheng and his family are glad to be able to put this matter behind them," Ms. Roy said in an e-mail. "Mr. Cheng looks forward to working towards regaining the confidence of his former colleagues and clients in the capital markets."
Mr. Cheng has also agreed to co-operate in the OSC's continuing investigation into alleged insider trading around the Amaya acquisition of the owner of PokerStars in 2014.
Mr. Rothstein quickly settled after allegations were brought against him last year by the OSC.
He admitted he broke securities laws by trading on information provided to him by Mr. Cheng. As part of that settlement, he paid an administrative penalty of $11,000.
The OSC also brought allegations last year against Eric Tremblay, co-founder of Aston Hill, and Frank Soave, a former broker with CIBC Wood Gundy in connection with the same Amaya deal.
Mr. Tremblay is accused of making misleading statements to the OSC during its investigation of illegal insider trading around the Amaya deal.
The OSC alleges Mr. Soave received a tip about the Amaya deal from Mr. Rothstein and that he subsequently traded on the information.
Both Mr. Tremblay and Mr.
Soave are contesting the allegations and a hearing on merits is scheduled for September.
At one time, Mr. Cheng had a high-profile career on Bay Street, managing billions of dollars in assets at several well-known fund companies. In the early 2000s, he managed a number of mutual funds for CI Investments Inc. with assets under management of about $4.9-billion.
In 2007, he co-founded publicly traded fund company Aston Hill Financial with Mr. Tremblay.
At Aston, Mr. Cheng struggled to replicate earlier successes. On Friday Mr. Cheng admitted that he encouraged Mr. Rothstein to pass on confidential information about the Amaya deal to Aston Hill clients to make up for losses some of them incurred on various Aston Hill products.