OSC alleges Cormark Securities was part of an ‘illegal’ short-selling scheme

Article content

The Ontario Securities Commission accused a trio of “sophisticated market participants” including investment dealer Cormark Securities of an “illegal and abusive” short-selling scheme.

Article content

In a statement of allegations released late Wednesday, Canada’s largest capital markets regulator said Cormark, William Jeffrey Kennedy, who was the head of equity capital markets for investment dealers, and client Mark Bistreiser, were identified as Canopy. accusing Growth of a complex scheme involving it, which regulators do not claim wrongdoing against cannabis companies.

Article content

According to a 10-page alleging statement, Cormark, Kennedy (who identifies himself as Jeff Kennedy) and his client devised a complex series of deals in 2017 that would reduce the expected surge in demand for Canopy to a “substantial I was able to make a profit with ‘no risk’ to the stock when the cannabis company joined the S&P/TSX Composite Index.

“After considering various ways to take advantage of the anticipated surge in demand, the three decided on a series of transactions, including a private placement, a securities loan, and a short sale,” the sole director and office said. “We entered into each transaction with consideration for the transaction” and “sold short when it was fully expected that we would be able to settle the short sale with the low-cost shares acquired through the series of transactions.”

Article content

According to an event presented by the OSC, Saline sold short shares of the cannabis company on the open market, purchased an equal number of Canopy shares in a private placement, and exchanged the private placement shares for freely traded Canopy shares in a securities loan. Agreed and used freely traded shares to settle the short sale.

“It is highly probable that short orders will be filled due to the expected demand for index funds,” the regulator said. In addition, Saline shorted most of his stock at the closing price, and the private placement price had previously been set at his 9% discount to the closing price, so he was confident of a 9% profit.

“Saline made no money of its own. Proceeds from the short sale were used to pay for private placements, securities loans, and Cormark’s services, which cost $362,500.” “Saline’s profit was $1.27 million.” exceeded.”

Article content

The OSC argued that the series of transactions amounted to the illegal distribution of Canopy shares, “sometimes referred to as ‘backdoor underwriting.'”

None of the allegations have been substantiated, and the first hearing is scheduled for November 23 via conference call.

Melissa McCune, Kennedy’s attorney in the case, said her client planned to “vigorously” defend himself.

“OSC’s lawsuit is based on a revisionist history and attacks an industry-accepted form of trading that is years out of date,” she said.

“We will defend our claims vigorously and look forward to a successful case in capital market court.”

Lawyers for Cormark and Bistriser were not immediately available for comment.