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New York, Toronto
TD traders probed in gossip crackdown
Sinclair Stewart, Boyd Erman and Andrew Willis
RTGAM
New York, Toronto - Toronto-Dominion Bank is probing whether a group of traders improperly passed on rumours about a stock to clients, a practice under intense scrutiny as U.S. regulators crack down on gossip that causes stock gyrations.
Two sources said the Financial Industry Regulatory Authority (FINRA), the main brokerage regulator in the U.S., is looking into the matter and the bank has suspended four employees. Sources said that three of the employees work on the New York sales and trading team at TD Securities Inc. The fourth is in the Canadian research department.
The employees were sent home about nine weeks ago, after a TD client contacted the bank's compliance department about an e-mail it had received regarding a rumour involving a company in the oil patch, according to people familiar with the matter.
These sources suggested an analyst at TD e-mailed a market rumour to the firm's sales and trading desk in New York, which then passed it along to some institutional clients.
On Tuesday, two sources suggested that the company in question is OPTI Canada Inc., a Calgary-based oil sands company that hired TD Securities late last year to advise it on its funding options for 2009. The stock has soared in the past two months on takeover talk.
A spokeswoman for TD declined to discuss specifics, but acknowledged the bank has contacted regulators and begun its own compliance probe.
"We are aware of the situation and have self-reported to the appropriate regulatory authorities," said Simone Philogcne. "Like any firm, we obviously take these sorts of things exceptionally seriously. It is under internal review and I can't say anything further."
A spokeswoman for FINRA declined to comment on whether the regulator is involved.
No one has been accused of any wrongdoing, and there is no evidence TD employees passed along insider information. In the United States, however, merely passing along gossip can be a dangerous game.
Compliance systems at most large U.S. firms will automatically flag e-mails that use terms like "rumour" - a safeguard to comply with securities rules designed to stop the spread of information that could play havoc with stocks.
In the wake of the Lehman Brothers Holdings Inc. failure, which many blamed on rampant rumours that the firm was out of money, the focus on stopping the spread of rumours has only intensified.
Bill Uchimoto, a securities lawyer at Buchanan Ingersoll & Rooney in Philadelphia, said regulators will likely focus on TD's relationship with the company mentioned in the e-mail.
"It does matter where the source came from," said Mr. Uchimoto, who spent five years with the U.S. Securities and Exchange Commission. "Under U.S. insider trading rules ? if they have some sort of client relationship with the issuer, they have a duty to refrain from passing any information, rumour or not, about that client."
TD's role as an adviser ended in January after the company sold a 15-per-cent stake in the Long Lake oil sands project to Nexen Inc. for $735-million, said Joe Bradford, OPTI's general counsel. TD still plays a role as the administrative agent of OPTI's revolving credit line, he said.
Mr. Bradford said he'd not heard about any investigation.
"One, we have no knowledge and two, we really don't have any comment on it," he said.
OPTI stock soared from a closing price of 63 cents on the TSX on March 11 to $2.10 just over a month later. After a pause, the rise began anew in early May and the stock topped $4 on May 11.
OPTI now has a 35-per-cent stake in the Long Lake oil sands project, which is operated by Nexen.
© 2009 The Globe and Mail |
