Monday, November 22, 2010

Law Firm Insider Trading -- Another (Alleged) Lawyer Violation

The Globe and Mail breaks news regarding another instance of lawyer insider trading: "Ensuring secrets stay that way." Noting that while: "[m]ost big Bay Street law firms have some sort of 'information containment' provisions in place... partners usually have broad access to a range of files." And it appears that one partner at Davies Ward Phillips & Vineberg was involved in an insider trading conspiracy involving three other individuals, according to the Ontario Securities Commission. (The partner is no longer affiliated with the firm, as of a week ago.)

This is not the first insider trading scandal to hit a prominent Canadian law firm. And while some may argue that lawyer insider trading is rare (see commentary by Dewey & LeBoeuf partner via WSJ), the legal community outside of Canada is far from immune to inappropriate access and use of price-sensitive information by lawyers and staff.

This latest incident, certainly stirred up some harsh criticism for the industry. And it's not the first. In a 2003 report, market regulators "singled out...the problem of lawyers leaking the details of deals they are working on..." The report was roundly criticized by the legal community, which argued self-regulation and existing rules and standards were sufficient and effective.

But this latest incident and attention highlights the shared risk all law firms face when their peers fail to live up to their obligations. Violations, transgressions and accidents strengthen the voices of those who call for external regulation. The article brings this into sharp relief:
  • "The allegations... have also thrown open questions about whether law firms and the legal profession are doing enough to stop people tempted to use or leak confidential knowledge about upcoming corporate deals."
  • "Canada’s poor reputation for failing to bust illegal insider trading is well known, said Ilana Singer, a lawyer and the deputy director of the Toronto-based Foundation for the Advancement of Investor Rights, which advocates for reforms to improve the integrity and fairness of Canada’s capital markets. But she does see some hopeful signs."

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