Torstar’s stock had been trading around the low-30-cent mark before spiking to 44 cents on May 25, 2020.Fred Lum/The Globe and Mail
Shares of Torstar Corp. jumped unexpectedly on heavy trading volume the day before the company announced late last month that it had received a takeover offer at a significant premium.
There were no announcements or news from Torstar that would explain unusual trading in the two days before the transaction announcement, and no industry news that would have had an impact on newspaper stocks more broadly. Investors traded no shares in Postmedia Network Canada Corp., another publicly traded Canadian newspaper company, in the three days before the Torstar announcement.
On the evening of Tuesday, May 26, NordStar Capital disclosed that it had agreed to pay 61 cents a share to take Torstar private. It was roughly a 100-per-cent premium over trades for the company’s stock the previous week.
The shares hit a low of 25 cents in late March, and were trading in the low-30-cent range, closing at 31.5 cents on Thursday, May 21. Over the previous 30 trading days, investors had traded an average of less than 20,000 Torstar shares a day.
On Friday, May 22, however, the stock climbed by 11 per cent, to 35 cents, on volume of 28,600 shares. More buyers joined in, aggressively and frequently, on Monday, May 25, sending the stock up 40 per cent to 44 cents from 35 cents. By the end of the day, 128,000 shares had traded – more than six times the 30-day average volume.
Investors who bought at prices from 31 cents to 44 cents generated returns of 38 per cent to 94 per cent in one to two days.
The spike in Torstar’s share price raises questions about whether some investors had information that a deal was about to go through and bought the stock before the broader investing public learned the news.
Potential insider trading is tracked by the Investment Industry Regulatory Organization of Canada (IIROC), which is responsible for monitoring and regulating trading on stock exchanges, and by provincial and territorial securities regulators, which investigate and prosecute cases. The Ontario Securities Commission is an active provincial force, given that Bay Street sits in the province.
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Both entities declined to comment specifically on the Torstar trading, as did the company and NordStar. In an e-mailed statement, Jordan Bitove, non-executive chairman of NordStar, said he and his partner, Paul Rivett, "have the utmost trust and confidence that our deliberately small team, legally bound to confidentiality, was not the source of any inside information.”
According to data from Bloomberg, in the final 20 minutes of trading on May 25, Torstar’s share price was pushed up by two trades of 10,000 shares each, as well as single trades of 14,000, 15,000 and 20,000 shares. All orders, Bloomberg shows, were placed through the same brokerage firm, TD Securities. TD spokeswoman Lynsey Wynberg declined to comment, saying "we don’t comment on specific client transactions.”
Stephen Aylward, a lawyer at Stockwoods Barristers who specializes in Canadian insider-trading law, declined to comment specifically on the Torstar situation. But Mr. Aylward said, generally, “Mergers and acquisitions activity, historically, is one of the classic insider trading scenarios," as company insiders and advisers to companies have passed on information about pending transactions. "It’s certainly not an uncommon scenario.”
However, making a case requires further steps for a prosecution to be successful, Mr. Aylward said. A non-criminal case brought by regulators, which has no potential prison time attached, requires a balance of probabilities to determine guilt, a lesser burden than proof beyond a reasonable doubt in a criminal case. “So, it’s possible to make out a case like this purely on circumstantial evidence," he said.
IIROC monitors stock trades using a robust new technology called SMARTS, acquired from Nasdaq in the United States and put in place last year. The system uses “sophisticated alerts which detect unusual patterns of activity,” which would include trading around merger and acquisition events, IIROC spokeswoman Andrea Zviedris said in e-mailed comments.
The organization has also introduced a system of “client identifiers” for transactions to make it easier to track who’s doing what. Ms. Zviedris said IIROC referred 12 potential insider-trading cases to various provincial securities regulators in 2019.
OSC spokeswoman Kristen Rose said information IIROC provides to the commission “is early-stage, raw trading data that simply indicates unusual trading activity, which may or may not rise to the level of illegal insider trading. There are many examples where the trading may initially appear unusual but upon review, ends up being compliant with securities regulation.”
Ms. Rose said the OSC also uses its relatively new whistle-blower program, which awards cash for information that leads to successful cases, including insider trading. Since the OSC’s most recent award announcement in April, 2020 – a payout of $525,000 – there has been a 71-per-cent increase in tips in the area of insider trading, she said.
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David Milstead