Friday News Finds – January 11, 2019

By Danica Bennewies

It’s time for another Friday Finds! If you’re new to the blog, this is the weekly series on the CBLB where we share five of this week’s securities and corporate law news stories that dominated the headlines, as well as our conversations.

A couple weeks ago we discussed Green Growth Brand’s $2.8-billion hostile takeover bid for the Ontario-based cannabis company, Aphria Inc. This offer was based on a price of $7 per Green Growth share, despite the fact that Green Growth was trading well below that value. Since the announcement, more information has come to light regarding Green Growth and Aphria, including a report from short-seller Hindenburg Research calling the bid “non-credible” and pointing out a number of connections between the two companies. For example, Aphria’s CEO Vic Neufeld has had business dealings in the US with a principal investor in Green Growth’s operating company, Xanthic Biopharma Inc. Hindenburg also alleged that a current Aphria director was recently listed on Green Growth’s board of directors and that other Green Growth directors have previously had affiliations with Aphria. Green Growth has since responded that no Aphria directors sit on its board and it is not aware of any of its shares being held by Aphria. Aphria’s stock price has suffered as a result of these allegations, and both Neufeld and co-founder Cole Cacciavillani are expected to leave the company. However, things are looking up for Green Growth, as its shares rose 10% on Thursday after a partnership with the shoe retailer DSW Inc was announced. With a stock price of $5.89, Green Growth is coming closer to the $7 per share valuation needed to proceed with its hostile bid for Aphria.

In other industry news, a new partnership was announced between Royal Bank of Canada (RBC) and BlackRock Inc on Tuesday. Canada’s largest bank and the world’s largest asset-management firm are teaming up to sell exchange traded funds (ETFs), under the brand name RBC iShares. The partnership brings together 106 BlackRock iShare funds and 44 RBC ETFs, for a total of 150 ETFs with a combined $60 billion in assets under management. This deal is a win-win situation. For RBC, teaming up with BlackRock makes the bank more competitive in the race to gather ETF assets. For BlackRock, partnering with RBC will improve the firm’s Canadian distribution network. However, the joint venture may also raise competitive concerns, given the dominance of the two companies. Though the partnership does have elements of a merger, the two companies will remain separate legal entities with separate fund management and portfolio advisory responsibilities.

Moving now to the regulators, TMX Group Ltd is again engaged in discussions with the Ontario Securities Commission (OSC). This week, TMX submitted a comment letter to the OSC requesting more time to comment on the proposed trading fee rebate pilot study. It’s been a few weeks since we last discussed this, so here’s a quick refresher: in December the Canadian Securities Administration (CSA) proposed a pilot study that would run concurrently with a similar US study proposed by the Securities and Exchange Commission (SEC). The aim of the study is to investigate the impact of trading fees and rebates on market participant behavior. Now, TMX says that it plans to submit a response to issues raised by this pilot study, but the 45-day comment period is currently set to end on February 1st. TMX claims that this comment period is “inappropriately short” and has asked for it to be extended to 90 days. In its comment letter, TMX argued that the proposed pilot “has the potential to materially impact equity market structure” and it is therefore important that sufficient time is given to prepare a thorough and thoughtful response.

On Monday, the Investment Industry Regulatory Organization of Canada (IIROC) held a hearing regarding a settlement between IIROC staff and Worldsource Securities Inc. At the hearing, Worldsource admitted that it failed to implement internal controls to prevent the double-charging of clients holding mutual funds that paid embedded fees within fee-based accounts. Due to the lack of these controls, 236 accounts were charged excess fees amounting to a total of nearly $150,000. Worldsource has since voluntarily made changes to its internal policies in order to avoid similar issues in the future. The hearing panel ultimately accepted a settlement consisting of a $100,000 fine plus $5,000 in costs.

Finally, let’s end off with some international news. On Wednesday, the European Securities and Markets Authority (ESMA) issued advice to European Union policymakers regarding concerns with the existing regulatory framework for cryptoassets. According to the ESMA, cryptoassets pose a new set of risks to investors, due to gaps in oversight. Certain cryptoassets don’t qualify as financial instruments under the existing rules, which opens investors to significant risk as they have little or no protection when investing in these assets. At the same time, for those cryptoassets that do qualify as financial instruments, challenges are faced by regulators in adapting the existing requirements to fit the specific characteristics of cryptoassets. Some of the recommendations proposed by the ESMA include making the existing anti-money laundering rules applicable to all cryptoassets, and requiring appropriate disclosure in all cases to ensure that consumers are aware of the potential risks prior to investing. You can read the full ESMA report here.

Thanks for joining us for this week’s Friday Finds! We’ll be back next week with more of the securities law news stories that are grabbing our interest