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Amaya Gaming announced its acquisition of PokerStars in June, 2014 to great fanfare. The purchase of the world’s largest poker site by what at the time was a relatively unknown gaming company seemed to be a masterstroke. Amaya’s stock price surged on the news, and the online poker industry rejoiced at the prospect of PokerStars returning to the United States.

What a difference a year makes.

Tumultuous Year for Amaya Management

Today, Amaya management is mired in an investigation launched by the Autorité des marchés financiers (AMF) in Québec over allegations of insider trading surrounding the purchase. The effect of this investigation on Amaya’s application for a license to operate in the regulated New Jersey market – or its future prospects in California – remains unclear. However, there is little doubt that a guilty verdict could deal a serious blow to its chances to enter the broader US market.

Through all of this, Amaya has remained defiant.

The stakes are high. Speculation is running rampant about who knew what and when in online gaming and political circles alike. With all that excitement, it can be easy to lose sight of the fact that there is an actual legal case going on. Below, we break down the insider trading law in Québec and discuss how it might be applied by the AMF.

Prosecutions for Insider Trading Rare in Canada

First off it must be said that insider trading cases in Canada are rare.

The Canadian Securities Administrators is an umbrella organization for provincial capital markets’ regulatory agencies. In February of 2015 the Financial Post reported that only 13 cases were undertaken by Canadian authorities in 2013 – a mere 3% of total caseload. The cited reason for such a low number is that most prosecutions are unsuccessful due to their often circumstantial nature.

As a general rule, prosecutors anywhere do not like to take on high profile cases that they do not feel extremely confident about winning. So, if Canadian authorities are bringing a high profile insider trading case it’s safe to assume they feel really confident about it.

The Securities Act

The AMF is the regulatory enforcement agency in Québec. Amaya is of course subject to both Québec Provincial and Canadian Federal law, but this article will only focus on the former. The relevant portion of law is the Quebec Securities Act. The part that regulates insider trading is Sections 187-191 in Chapter 1 of Title VII.

Section 187

Section 187 lays out the basic definition of what is prohibited and provides some exception to the rule. This is what it says:

No insider of a reporting issuer having privileged information relating to the securities of the issuer may trade in such securities or change an economic interest in a related financial instrument, except if he can prove that:

1) he is justified in believing that the information is generally known or known to the other party;…”

The first key word/phrase here is “privileged information.” This term is legalize for “knowing something about the company that could affect its share price that the public didn’t.”

Looking at the fluctuations in Amaya’s stock price leading up to the official announcement of its acquisition of PokerStars, the first big jump takes place between May 16th and May 23rd. This coincides with an earnings call during which Amaya CEO David Baazov describes a recent influx of cash to Amaya by stating simply “we are bolstering the balance sheet.” He also alludes a potential acquisition by the company. It’s obvious from these comments that he knows the company is about to make a big acquisition.

That brings us to the second important term in the law, which is “is justified in believing that the information is generally known.” The heart of the issue is not whether Amaya brass knew about the potential acquisition of PokerStars — it’s clear in hindsight from Baazov’s comments that they did.

What is unclear is whether if conference call provided enough information or allusions that smart investors could read between the lines and see that something big was coming, and react accordingly. If that is in fact the case, then the anomaly in the the stock price could be explained away as work by sophisticated, prescient, investors getting out in front of the market. That by extension would make it much more difficult for a prosecutor to prove that there was “privileged information” based solely on the fluctuations in Amaya’s stock price.

Interesting to note as well is another rapid increase in the price of Amaya’s stock in June, just days before Bloomberg reported a deal for PokerStars to be imminent. It’s safe to say that prosecutors will find this suspicious because the stock price had remained relatively unchanged for the 2 weeks before the jump.

Section 188

Section 188 describes what is commonly known as “tipping.” The concept is that the rules against insider trading on privileged information could easily be circumvented if you could give it to a third party to act on. Therefore, this activity is illegal as well.

This section reads:

No insider of a reporting issuer having privileged information relating to securities of the issuer may disclose that information or recommend that another party trade in the securities of the issuer…”

As reported by Forbes Magazine, the investigation also includes the Canadian investment bank Canaccord Genuity (“Canaccord”), as well as insurance firm Manulife Financial Group (“Manulife”). Additionally, the Canadian Daily The Globe and Mail reported that Yoel Altman is currently under investigation by authorities. Altman is said to be a “close friend” of Baazov and Amaya consultant.

It would make sense that individuals like Altman would have non-public information about the negotiations between PokerStars and Amaya. However, it’s also possible that individuals at Amaya fed additional information, or acted in concert with, people at Canaccord or Manulife.

Although the nature of the interactions between these players is being kept a secret, it’s clear that possible violation of this section of the law are being investigated. To this point, no hard evidence has been leaked suggesting anything concrete showing a violation of the law.

AMF Likely Has Evidence We Don’t Know About Yet

We know that Canadian authorities are reluctant to bring insider trading cases based solely on circumstantial evidence. We also know that the circumstantial evidence in this case – namely, the changes in Amaya’s stock price – could very plausibly be due to publicly available information. Therefore, it is likely that the AMF has some kind of hard evidence at the core of its investigation.

This makes sense. This theory is also bolstered by reporting in the Globe and Mail which stated it is believed that the AMF acted after receiving tips from individuals within Manulife. If that is in fact true, then it is entirely possible that brokers with in Manulife provided documents that would be solid evidence in any future court prosecution.

Therefore, it appears as if there is more to this case than is currently known. It is likewise best to hold off on making any kind of assumptions about where it is headed.

Bradley Chalupski

Bradley Chalupski made his first deposit onto an online poker site in 2009 and has been paying rake and following the poker scene ever since. He received his J.D. from the Seton Hall University School of Law in 2010.