By Danica Bennewies
Welcome back to another installment of Friday Finds on the CBLB! In this weekly series we share five of the top corporate and securities law news stories that grabbed our attention over the past week. This week, we have new stories from the regulators as well as updates on last week’s biggest headlines. Keep reading to find out what stories have been dominating our conversations.
First up, in Canadian regulatory news, the Ontario Securities Commission (OSC) recently released a warning to Canadian investors regarding convicted fraudster Weizhen Tang. Tang was criminally convicted of fraud in 2012 and then received an order in 2016 that permanently banned him from trading securities, working as a registrant in the financial industry, or serving as a director or officer of a company or investment firm. However, Tang has blatantly disregarded this order, instead announcing his plans to create an investment fund for both retail and institutional investors that offers returns of 1% per week. In an email sent to the Toronto Star, Tang said that he plans to avoid the implications of this order by seeking investors outside of Ontario. In a recent article for the Toronto Star, Professor Anita Anand discussed Tang’s defiance of the OSC: “Such egregious behaviour is the very reason that Ontario needs both a strong capital market regulator and courts to address violations of securities regulation”. While this warning is an important first step, Professor Anand commented that having a central registry in Ontario that contains information about past convictions and sanctions would be even more beneficial: “Investors need to have a central database to which they can refer when individuals are at their doorstep trying to defraud them.”
Following up from last Friday’s post, we have an update on the Air Canada/Transat deal. Real estate developer Group Mach Inc has thrown a wrench into Air Canada’s plans to buy Transat AT for $520-million. This week, Group Mach offered $14 per share in cash to buy Transat – a $1 per share increase on Air Canada’s bid. In a statement issued on Tuesday, Group Mach said that the total unsolicited offer is worth over $1-billion. Transat released a statement shortly following the announcement of Group Mach’s proposal. The Quebec-based airline acknowledged the offer but also pointed out that it is currently in the 30-day exclusive negotiation period with Air Canada, though there is no guarantee that these talks will end in a conclusive deal. According to the terms of Air Canada’s offer last month, Transat is able to withdraw from the exclusive negotiations if it receives an unsolicited proposal of at least $1 per share higher than Air Canada’s offer and Air Canada neglects to match the bid. Group Mach’s offer has left people wondering what Air Canada’s next move will be and how these negotiations will play out.
This week also saw developments in the Fiat Chrysler/Renault deal. Last week we discussed how Fiat Chrysler proposed a 50/50 merger with Renault, which would have formed the third largest automaker in the world. However, this week Fiat Chrysler pulled out of the deal, pointing to the political climate in France as the main driver behind its decision. This came following a 6-hour long meeting of Renault’s board that resulted in the French government requesting a postponement of any decision on the proposal. According to a source close to the deal, the French government wanted job and investment assurances, a seat on the new entity’s board, and to have the new entity’s operational headquarters located in France. In a statement issued on Wednesday, Fiat Chrysler said that “it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully”, but it would continue to implement its independent strategy. Nissan declined to comment on the news.
In cryptocurrency news, this week marked the start of a legal battle between Kik Interactive Inc and the Securities and Exchange Commission (SEC). On Tuesday, the SEC sued Kik for illegally raising US$100-million through its initial coin offering (ICO) in 2017. Kik’s position is that its digital token, Kin, is a currency, while the SEC claims that the ICO constituted a securities offering. The SEC alleges that Kik sold the digital token without the proper disclosures and without registering the offering with a regulator, and is now seeking monetary penalties. The complaint further alleges that Kik marketed Kin as an investment opportunity and, at the time of the ICO, a transaction system for the token did not exist. For these reasons, Kik’s ICO involved securities transactions and was therefore subject to US securities laws. This is perhaps the most notable cryptocurrency enforcement action to date and the crypto community is paying close attention to how it plays out. The results of the SEC’s action could have major implications for the crypto industry, potentially setting a new standard for how future ICOs are conducted.
Finally, we have some regulatory news from the US. On Wednesday, the SEC adopted new rules that are intended to improve the quality and transparency of retail investors’ relationships with their broker-dealers and investment advisers. The package of reforms adopted by the SEC includes the new “Regulation Best Interest”. This new rule requires broker-dealers to act in the best interests of their clients when making recommendations regarding securities transactions and investment strategies. Other reforms include new relationship disclosure requirements for broker-dealers and investment advisers, measures to reaffirm and clarify the fiduciary duty that investment advisers owe to their clients, and measures that delineate when a broker-dealer’s advisory activities cause it to become an investment adviser under the relevant securities laws. The SEC hopes that this package of reforms will bring the legal requirements for broker-dealers and investment advisers in line with investors’ reasonable expectations, without limiting investors’ access to a variety of products and services.
That wraps up this week’s installment of Friday Finds. Be sure to check back on the CBLB next week for more of the top corporate and securities law news stories.