Friday News Finds – February 8, 2019

By Danica Bennewies

Welcome back to the CBLB! It’s time for another installment of Friday Finds – the weekly series where we share five of the top corporate and securities law news stories that made waves in the headlines this week. We’ve got a full line up of interesting stories from the week, covering everything from industry news to the latest updates from regulators across the country.

Let’s get started with an update on the Green Growth Brands hostile takeover of Aphria Inc. When we last discussed this story two weeks ago, Green Growth had officially filed its unsolicited bid for Aphria, offering 1.5714 Green Growth shares per Aphria share. On Wednesday, Aphria’s board rejected the bid. The company did not waste time letting Green Growth down gently, stating that Green Growth’s offer is “…significantly undervalued and inadequate and not in the interest of Aphria shareholders…”. Furthermore, in a press release issued the same day, Aphria’s chair cited Green Growth’s limited operating history, minimal assets, and lack of track record in the cannabis industry as further reasons that the board was against the bid. However, Green Growth seems unphased by Aphria’s rejection. CEO Peter Horvath commented that there are still nearly three months left in the bid process and “anything can happen”. Green Growth’s bid expires on May 9th.

In other industry news, earlier in the week three lawsuits were launched by investors against the Royal Bank of Canada (RBC), Bank of Montreal (BMO), and National Bank of Canada. The proposed class actions were filed against the asset management divisions of the three banks, and claim that investors who purchased these banks’ mutual funds through discount brokers were overcharged due to trailing commissions on certain funds. These trailing commissions include a fee for advice, however this advice is never received by investors who purchase the funds through discount brokers. Trailing commissions have been a major topic of discussion in recent years. According to a paper released by the Canadian Securities Administrators (CSA) in 2017, 83% of mutual funds sold through discount brokerages in Canada include trailing commissions. These three latest actions bring the total number of lawsuits challenging the payment of trailing commissions up to seven, though none of the class actions have been certified yet.

Moving to the latest news from the regulators, the Ontario Securities Commission (OSC) dismissed allegations of insider trading against a CIBC broker following a hearing panel on Wednesday. The broker, Frank Soave, was accused of buying into Amaya Gaming Group Ltd with inside knowledge on an upcoming transaction involving the company. Soave received the tip on Amaya from an employee at the asset management firm participating in the financing of Amaya’s acquisition. The point of dispute at the hearing was not whether Soave had received the tip, but whether he knew that it was based on inside information. The hearing panel found that it was not proven on a balance of probabilities that Soave knew the employee was in a special relationship with Amaya. Furthermore, Soave’s work often involved receiving information from fund managers and it was therefore not unreasonable for him to believe that the tip was simply a recommendation from a portfolio manager, rather than insider knowledge.

On the other side of the country, the British Columbia Securities Commission (BCSC) stated on Thursday that it does not have jurisdiction over the cryptocurrency exchange QuadrigaCX. The Vancouver-based exchange has been unable to access $190-million in cryptocurrencies following the death of its founder, Gerald Cotten, in December. Cotten was the sole holder of the access keys to the exchange’s cold wallets, where the exchange kept most of its assets. As a result, the 115,000 users of Quadriga have been struggling to figure out how to get their money back. Unfortunately for these investors, the BSCS said that it doesn’t have the authority to regulate Quadriga, as there is currently no indication that Quadriga was trading securities or derivatives or operating as a market place according to BC securities laws. As such, investors cannot yet turn to the courts for recourse. The RCMP has stated that they are aware of the allegations against Quadriga, but declined to discuss whether they are investigating the crypto company.

We’ve discussed Ontario’s proposed new provincial regulator, the Financial Services Regulatory Agency (FSRA), a number of times in previous posts. The FSRA is expected to launch this spring and will replace both the Financial Services Commission of Ontario (FSCO) and the Deposit Insurance Corporation of Ontario (DICO). Earlier this week, the FSRA announced changes to its proposed fee model, which was originally published back in October 2018. The changes come out of the first round of public consultations on the fee model and are intended to ease the transition to the new regulator for certain sectors. Some of the changes include giving firms more time to pay their invoices and the elimination of a planned fee exemption for certain health service providers. Though the FSRA says that the fees charged to the mortgage and brokerage sector will likely not be sufficient to cover the regulatory costs in the first year, the agency plans to borrow funds to cover the shortfall rather than increase fees. These loans will be repaid with future fees charged to the sector. You can read more about the FSRA’s proposed fee model changes here.

That wraps up another Friday Finds. Enjoy your weekend, and check back on the CBLB next week for more of the latest securities law news.