Nunavut Iron Ore Acquisition, which Walter and Waheed headed, later joined forces with their rival — multinational steel giant ArcelorMittal — to buy Baffinland in partnership for about $590 million.
A panel of three OSC commissioners, which held hearings earlier this year, ruled that the evidence didn't support the allegations of tipping and insider trading that were filed against the two men in early 2012.
The panel said there was no dispute that Waheed had received, while working as a consultant for Baffinland, some information about its negotiations with ArcelorMittal but the question was whether the non-public information was significant — or material — when Nunavut made its initial investments in Baffinland on Sept. 9, 2010, a few months after his consultant contracted expired.
The panel decided that Waheed — who was on contract to Bafflinland from Feb. 18, 2010, until about June 15, 2010, — wasn't in a special relationship with the junior mining company and didn't have knowledge of material facts about the ArcelorMittal negotiations at the relevant times.
Walter, who was semi-retired when he was approached by Waheed in July 2010, had been a managing director at BMO Nesbitt Burns from 1999 to 2001. In the 1980s, he had been a lawyer at a predecessor of Toronto firm Davies, Ward, Phillips & Vineberg, which advised the two men and Nunavut Acquisition during its initial takeover bid for Baffinland.
The panel decided that Walter — who had been friends with Waheed since the 1980s and helped him form Nunavut Iron Ore — didn't receive and trade on insider information because the case against Waheed hadn't been proved.
An allegation of acting contrary to the public interest, which is sometimes used by the OSC when there hasn't been a specific breach of the Ontario Securities Act, was also dismissed for several reasons.
The panel agreed with the respondents, as defendants are called in OSC proceedings, that the act doesn't "prohibit trading on the basis of non-material confidential information or rumours, speculation and suppositions."
"Having found that the respondents did not have knowledge of material facts relating to the negotiations between Baffinland and ArcelorMittal . . . we do not find it appropriate in the circumstances to find that their conduct in this respect was contrary to the public interest."
In addition, it said that any breach of Waheed's responsibility to Baffinland — who was given access to confidential information while a consultant — was a private rather than a matter of public interest.
"Given that the Baffinland board chose not to exercise Baffinland's contractual and other remedies after careful deliberation and with the benefit of legal advice, it should not, in our view, now fall to the commission to deal with matters that should be properly left to the courts."
It also found that, contrary to the allegation that the two men had an unfair advantage over other investors because of Waheed's knowledge, "no evidence of any harm suffered by investors or harm to the capital markets was provided."
Tom Atkinson, the OSC's enforcement director, said in a statement Wednesday after the ruling was made public that the regulator has a duty to investigate suspected illegal insider trading schemes and will continue to pursue cases when the evidence is compelling and when important matters of regulatory policy are involved.
"This matter was investigated and presented in a thorough and professional manner and I commend staff for their dedication throughout the process," Atkinson said in an email in response to requests for comment.
Kent Thomson, a Davies, Ward lawyer who represented Walter in the OSC proceedings, said in an interview Wednesday that his client was pleased the OSC panel had rejected "each of those allegations and, of course, dismissed the case in its entirety."
"Our basic submission was there was no substance whatsoever to the allegations of insider trading made against either Mr. Waheed or Mr. Walter, and that there was no basis whatsoever for the commission to exercise its public interest jurisdiction against either of them and the commission accepted that submission."
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