Mitchell Finkelstein, right, is shown at the Ontario Securities Commission in 2011.Brett Gundlock/The Globe and Mail
Former Bay Street lawyer Mitchell Finkelstein deposited a total of more than $42,000 in cash in his bank accounts within days of the announcement of four takeover deals he is accused of tipping a friend about between 2004 and 2007, an Ontario Securities Commission lawyer alleged Monday.
The OSC launched its case Monday against Mr. Finkelstein, a former partner in the mergers and acquisitions practice at Davies Ward Phillips & Vineberg LLP who is accused of tipping a long-time friend about six takeover deals being worked on by his firm. He left Davies in 2010 when the OSC allegations were revealed.
His friend, Paul Azeff, a former investment adviser with CIBC World Markets Inc. in Montreal, is accused of improperly buying shares based on Mr. Finkelstein's tips and also passing along the information to a wide network of family members and clients. The case also includes allegations of insider trading and tipping against Korin Bobrow, who was Mr. Azeff's business partner at CIBC.
The men all deny the allegations, which have not been proven.
OSC lawyer Donna Campbell said Monday that the case will be a "records case," relying on records showing a pattern of phone calls between Mr. Finkelstein and Mr. Azeff, as well as trading records and e-mails.
"This is a case about failure of integrity in those who are trusted with great responsibility," Ms. Campbell said.
The deals at the centre of the case include some major takeover bids in Canada between 2004 and 2007, including the $3-billion offer for Masonite International Corp. in 2004, the $10.3-billion bid for Placer Dome Inc. in 2005, as well as bids for Legacy Hotels REIT and Dynatec Corp. in 2007.
Ms. Campbell said Mr. Finkelstein was personally working on some of the deals, while others were being handled by different lawyers at Davies, but Mr. Finkelstein allegedly accessed the files through the firm's computer system.
Ms. Campbell alleged Mr. Finkelstein made telephone calls to Mr. Azeff after learning details about takeover deals, and on occasion had meetings with Mr. Azeff in Toronto or Montreal after the deals were announced.
She alleged Mr. Finkelstein deposited piles of $50 and $100 bills in two bank accounts after meetings with Mr. Azeff around the time of four of the deals. The cash totalled $42,500, including $24,350 deposited after the Dynatec deal, she said.
Mr. Finkelstein, who grew up in Montreal, met Mr. Azeff when both were members of the same fraternity at the University of Western Ontario in the late 1980s. He joined Davies in Toronto in 1998 and became a partner two years later, specializing in financings and takeover deals.
The OSC case also names two former investment advisers at TD Waterhouse Canada Inc. – Howard Miller and Man Kin Cheng – who are accused of trading and passing along tips to clients after allegedly learning about the same deals from one of Mr. Azeff's clients.
Also Monday, the OSC heard testimony from its first witness, a former colleague of Mr. Finkelstein's from the mergers group at Davies. Lawyer Mark Connelly said Mr. Finkelstein was "a top notch lawyer" who worked on several major deals, including the Masonite transaction.
Mr. Connelly also said he became concerned about Masonite's rising share price in the days before the deal was announced. He said he and Mr. Finkelstein contacted the Toronto Stock Exchange to discuss the unusual trading pattern, but said TSX staff were not particularly concerned.
Mr. Connelly said Davies had an open culture between 2004 and 2007 and files on some merger deals were not hidden behind a firewall.
Under cross-examination by Mr. Finkelstein's lawyer, Gordon Capern, Mr. Connelly agreed that records showed Mr. Finkelstein had accessed over 8,000 documents between 2003 and 2007 that involved cases he was not working on.
Mr. Connelly agreed with Mr. Capern's suggestion that lawyers often accessed other files to find precedents to use when drafting documents or working on other cases, and said it would not surprise him to see that Mr. Finkelstein made extensive use of the documents system.
"It certainly was not inappropriate to access documents to which you were not assigned," Mr. Connelly said.
The OSC alleges Mr. Azeff, Mr. Bobrow and their circle of friends and clients earned more than $3.4-million in profits on trading in shares based on tips from Mr. Finkelstein, which were passed along to a wide circle of people.
Prior to the Masonite deal announcement, for example, Ms. Campbell alleged Mr. Azeff, Mr. Bobrow and their friends and clients acquired $15-million of Masonite. On one day before the deal was announced, Mr. Azeff and his group accounted for 45 per cent of all trading in Masonite shares, Ms. Campbell said.
She said members of the Azeff group earned a 54-per-cent profit from shares of MDSI Mobile Data Solutions Inc. from one day of share purchases before a takeover bid for the company was announced.
Janet McFarland