By Danica Bennewies
Welcome back to the latest installment of Friday Finds on the CBLB. Another week has flown by, but don’t worry if you’re feeling behind on the news – we’ve collected five of the biggest corporate and securities law news stories to help you get caught up. In today’s post we’re talking about cannabis, cryptocurrency, and more. Keep on reading to find out what grabbed our attention this week.
First, in regulatory news, the Ontario Securities Commission (OSC) made a big arrest this week. On Tuesday, the OSC announced that it arrested a previously convicted fraudster that had fled Canada two years earlier. William Wallace and his partner Robert Heward were convicted in December 2016 for fraud, unregistered trading, and an illegal distribution under the Securities Act (Ontario). Their convictions related to their involvement in a Tanzanian gold mining investment scheme that resulted in nearly $7-million in investor losses. Both Wallace and Heward fled Canada in August 2016 before their trial was concluded, and were convicted in absentia and each sentenced to four years in prison. While Heward voluntarily returned to Canada in 2017 and was remanded to prison, Wallace has remained at large. After a warrant was issued for his arrest, the OSC also got an Interpol Red Notice for Wallace that alerted police agencies around the world of Wallace’s wanted statues. Wallace was subsequently arrested in the United Arab Emirates this past February and has since been returned to Canada to serve out his prison sentence.
In industry news, Hudson’s Bay Co (HBC) went into its annual meeting on Wednesday amid lots of controversy over a go-private bid and a proposed pay package for CEO Helena Foulkes. First, let’s talk about the go-private bid. Executive chairman Richard Baker recently made a bid of $9.45 per share to take the retailer private. Baker has since been facing pressure from shareholders to increase his offer. For example, on Tuesday the US activist investor Land & Buildings Investment Management LLC referred to the bid as “woefully inadequate” and called on HBC to explore other strategic options. However, this bid wasn’t the only talking point at the meeting. Shareholders also approved a $29.4-million pay package for CEO Helena Foulkes, though nearly 30% of shareholders voted against this compensation scheme. Based on 2017 data, this compensation package would make Foulkes the second highest paid CEO in Canada. In its information circular, HBC said that this level of compensation is necessary in order to attract Foulkes and is in the best interests of the company.
Moving now to the cannabis industry, on Wednesday the shareholders of both Canopy Growth Corp and the US-based Acreage Holdings Inc voted in favour of a partnership between the two companies. This would mark the first major cross-border deal in the cannabis industry. The deal between the two marijuana firms is an unusual one and would have Canopy pay US$300-million for the rights to acquire Acreage’s outstanding shares in the future at a pre-fixed share-exchange rate. A full acquisition was valued much higher, at approximately US$3.4-billion, and may be triggered depending on whether the US federal cannabis laws change. Currently, cannabis is federally illegal in the US and most major stock exchanges, such as the Toronto Stock Exchange, New York Stock Exchange and Nasdaq Exchange, don’t allow listed companies to participate directly in US cannabis business. The complicated deal structure between Canopy and Acreage functions as a work-around to allow Canopy to gain exposure to US state-level cannabis markets. Other Canadian cannabis firms are keeping a close eye on how the deal plays out to see how they too might enter the US marijuana market without violating federal laws.
We’ve previously talked in a number of posts about the Quadriga debacle. For a quick recap – Gerald Cotten, founder and CEO of QuadrigaCX, unexpectedly passed away back in 2018. He also happened to be the sole holder of the access keys to the exchange’s cold wallets, leaving hundreds of thousands of users unable to access nearly $190-million in cryptocurrency. A new report released this week by Ernst & Young, the firm overseeing the bankruptcy proceedings for Quadriga, shared more evidence that suggests Cotten was mismanaging the digital asset exchange. In particular, the report found that business was run almost entirely by Cotten alone from his personal laptop, resulting in a significant lack of operational controls and financial reporting procedures. On top of this, large volumes of cryptocurrency appeared to have been transferred off of the Quadriga platform and into both competitor exchanges and Cotten’s personal accounts. According to the report, these transfers resulted in conversion fees as well as overall trading losses. Finally, Ernst & Young’s report also updated the estimated amount owed to Quadriga users to $74-million in cash and $140.5-million in cryptocurrency.
Speaking of cryptocurrency, this week Facebook announced its plans to launch its own global cryptocurrency, Libra. The social media giant has joined with 28 partners, including big names like Uber, Paypal, and Mastercard, to form an entity it calls the Libra Association, which will be based in Geneva and responsible for governing the new digital currency. However, given the uncertainty around cryptocurrency regulation (which we’ve talked about in previous posts), this news has governments around the world on edge. Following Facebook’s news release, France announced that it is creating a G7 task force to look into how central banks around the world are ensuring cryptocurrencies, like Libra, are governed by regulations spanning from anti-money laundering laws to consumer protection rules. While France is taking a cautious approach to cryptocurrencies, it doesn’t appear that the government is opposed to them. In a statement today, France’s central bank governor Francois Villeroy de Galhau said “We want to combine being open to innovation with firmness on regulation. This is in everyone’s interest.”
Those were our top headlines for this week. Be sure to check back on the CBLB next week for more major corporate and securities law news stories!