A former Bay Street executive was pressured by his high-profile boss into participating in an insider tipping scheme in Amaya (AYA.TO) shares, according to a settlement announced by the Ontario Securities Commission on Tuesday.
John David Rothstein, former senior vice president and national sales manager at Aston Hill Asset Management, agreed to pay $11,000 in penalties and will be barred from working as a director, officer or registered investment manager for two years as part of the settlement with the OSC.
The pressure to participate in the scheme, as well as his co-operation in the investigation and other mitigating factors were considered, the OSC said.
“[Rothstein] was given the tip in question by his boss [ex-Aston Hill President Ben Cheng],” the OSC said. “He should have exercised his own judgment and declined to pass along the tip, but he felt pressure to please his boss and an important firm client.”
Rothstein has no prior record with the OSC. Since the allegations came to light, he lost his job and is struggling to find employment, according to the OSC. “The publicity that is expected to follow from this Settlement will likely make it even more difficult for him to find work and support his family,” according to the settlement. “[Rothstein] supports his family financially, which includes three school-aged children.”
Allegations are still outstanding against Cheng, as well as former Aston Hill CEO Eric Tremblay and Frank Soave, who was first vice-president and investment advisor at CIBC Wood Gundy.
The charges relate to Amaya’s US$4-billion deal in 2014 to acquire Olford Group Ltd., the company that owns and operates online gambling websites PokerStars and Full Tilt Poker. Amaya shares skyrocketed in value after the deal was announced.
The OSC alleges Cheng learned details of the upcoming transaction in April of 2014 after a meeting about the proposed takeover. The regulator says Cheng later consented to a non-disclosure agreement about the deal. Cheng was a high-profile investment executive at the time and made regular media appearances – including on Business News Network.
On June 11, 2014, a day before the deal was to be made public, Cheng asked Rothstein via email to meet him in an office boardroom. In that meeting, the OSC alleges Cheng tipped off Rothstein about the pending deal and told him to spread the word among Aston Hill clients.
“Cheng… suggested to Rothstein to inform others, who had lost money on certain other investments promoted by [Aston Hill], about the acquisition before it was announced,” the OSC said in an earlier statement of allegations. “Rothstein understood that the purpose of providing them with the material, undisclosed information was to make up for these losses.”
About two hours after the meeting Rothstein purchased 700 shares of Amaya for himself at $11.875 per share. He sold two days later at $19.77 per share – pocketing $5,507 in profits, the OSC said.
As part of the settlement, Rothstein agreed to disgorge $5,500 in trading profits and pay $5,500 in OSC administrative costs.
The afternoon before the deal was announced, Rothstein texted “AYA,” the Amaya stock market ticker, to CIBC Wood Gundy’s Soave. Moments later, Soave allegedly texted back “Sorry never owned it should I?” Rothstein texted back, “Yes.”
The next morning Rothstein allegedly told Soave about the impending deal. Soave bought 5,000 Amaya shares at $12.10 each. When the company’s shares were halted less than two hours later Soave texted Rothstein stating, “Wholy Shit (sic).”
Soave realized a trading gain of $98,921 when he allegedly sold his Amaya shares for $19.78 just a day later. Soave texted “thank you” to Rothstein who then texted back: “Unbelievable.” Soave had never purchased Amaya shares before, according to the OSC.
The OSC also alleges that Cheng, Soave, and Tremblay made false or misleading statements to the regulator during the course of its investigation.
Cheng allegedly told colleagues about a confidential meeting he had with OSC investigators in 2016 which gave others an opportunity to change to their testimony. Cheng also suggested to Rothstein “what Rothstein’s evidence to Staff should be when examined under oath,” the OSC said.
Rothstein’s early and full cooperation were considered a mitigating circumstance in the settlement, the OSC said Tuesday.
Soave provided “false explanations” for the texts and emails, and Tremblay told investigators that Rothstein bought the Amaya stock “because of information he heard from brokers,” according to the OSC.
In November, Amaya founder and former President David Baazov will face a criminal trial on insider trading charges in Quebec. He will stand trial with childhood friend Benjamin Ahdoot and Yoel Altman, an advisor to Amaya. The men have been charged with insider trading and attempting to influence the market price of Amaya securities. All three men have pled not guilty in what has become one of the largest insider trading cases in Canadian historyAston Hill Financial merged with Front Street Capital in 2016. At the time, Cheng took a leave of absence from the company he founded with Tremblay in 2007. Tremblay stepped down from the company in 2015.