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The public detour around insider trading laws

Information shared by a director of a public company with friends and family is closely monitored in Canada.

Information shared by a director of a public company with friends and family is closely monitored in Canada.

A corporate CEO, for instance, can legally share sensitive company information with their brother.

But that brother can’t use that information to buy or sell shares in the company — unless the public has a chance to know the information at the same time.

People caught trading shares in such a scenario can go to prison: just ask Martha Stewart.

But the rules seem to bend far more easily for elected officials.

There’s nothing to prevent a Yukon cabinet minister, for instance, letting slip to members of his or her extended family that a mining company is looking very healthy and that the government will be investing millions in that venture in the near future.

And if a cabinet minister owns a holding company, it’s difficult to force them to reveal what the holding company owns, raising questions of potential conflicts.

And there’s little public or legal oversight preventing a member of a minister’s family from making a profit as a result of their relationship with power, even though a similar scenario could lead to prison time for a corporate CEO.

The apparent loophole is coming under scrutiny in the wake of the opening of the Minto copper mine near Pelly Crossing.

Vancouver-based Sherwood Copper Corporation owns Minto and has received millions of dollars of public money in direct and indirect handouts from the Yukon Party government.

On April 3, the government committed $10 million toward building an extension of the hydro-electricity grid from Carmacks to Pelly Crossing, which will connect the Minto mine to the grid.

That will save Minto about $4 million per year in electricity costs, Sherwood president Stephen Quin said in a previous interview.

On April 24, the government announced Minto Explorations, owned by Sherwood, would receive up to $200,000 in public funding for further mineral exploration at the site.

And recently, the Yukon Development Corporation announced it is paying the entire cost of the transmission line extension between Carmacks and Pelly, as well as a spur line to the Minto mine.

Costs are estimated to run $23 million or more, though Sherwood will pay about $7.2 million of the main line’s costs and the full price of the spur line.

For the most part, the deal still needs approval from the Yukon Utilities Board.

But such investments — either public or private — can have an impact on stock prices, said financial advisor Chris Geshev with Assante Capital in Whitehorse.

“The market is perceived as a human being, as a beast, a living thing,” said Gestev. “It basically reacts positively or negatively to a news release.”

When money is invested, the stock market’s confidence in a firm can be increased — along with the company’s share price, he said.

Gestev reflected on investments by the Yukon government into Sherwood Copper and their relative effect on its share price.

The recent $200,000 announcement “hasn’t had a huge impact,” he said.

But the upcoming decision on the power deal between Sherwood and the Yukon Energy Corporation could be different, he said.

While the company has an economic feasibility study that says it will be profitable using diesel generators to create electricity, the availability of cheaper power “will definitely be positive for the development of the share price,” said Gestev.

Sherwood Copper stock is currently trading at $5.30 per share.

Two years ago, it was worth $1 a share.

If a person bought $1,000 of Sherwood Copper in June 2005 and sold it today, they would have made about $4,000 — a 500-per-cent profit.

When the government’s $10- million investment in the transmission line was announced, Sherwood’s stock jumped from $5 on April 3 to a high of $5.60 about a week later, a 12-per-cent increase.

Though many other factors are at play in Sherwood’s stock price, public money injections clearly have an impact.

And therein lies the danger, said Liberal leader Arthur Mitchell.

When Mitchell was elected to the Yukon legislature he found he had access to information about Sherwood that the average Yukoner didn’t.

At a mining conference in 2005, he was even given an audience with Quin.

During that discussion Mitchell realized Sherwood’s stock was “clearly undervalued,” he said.

He quickly called his broker to make sure he didn’t own Yukon mining company stocks.


“I had an advantage that other Yukoners don’t have, so I chose not to purchase any shares in Sherwood,” said Mitchell.

“But there was nothing legally preventing me from that, which I think is a problem,” he said. “The (conflict of interest) rules could extend to the opposition. We still have access to inside information.”

Under the Conflict of Interest Members and Ministers Act, ministers and MLAs are obliged to reveal their private interests to permit oversight. The goal is to prevent them from profiting privately from their public duties.

That act applies to the MLA, their spouse and their children.

It doesn’t preclude extended family like brothers and sisters from, for instance, owning shares in a company that’s receiving public money.

While it may be ideal to require such disclosure, it gets more difficult to apply, said Mitchell.

 “The next problem is that our rules don’t compel us to disclose interests of siblings, and I don’t know how we would,” he said. “There’s nothing to prevent them from doing what they will do.”

If the rules were changed, a sibling of an elected official could simply refuse to disclose what they own because they’re not elected.

“It’s problematic. I don’t know how we would enforce it. But there’s a loophole there big enough to drive a truck through. It shouldn’t be that way,” he said. “It’s just too easy.”

Under the Yukon’s conflict of interest legislation, every MLA must file an annual disclosure revealing the investments they, their spouses and their children own.

Brothers, sisters and other extended family aren’t included under those requirements.

Holding companies, owned by several cabinet ministers and MLAs, are like lockboxes to which the public isn’t given access.

Conflict of Interest commissioner David Philip Jones was contacted for this story but didn’t return phone calls.

Unlike Mitchell, Premier Dennis Fentie and Energy, Mines and Resources Minister Archie Lang say the conflict of interest legislation provides enough protection.

Lang could potentially be in a conflict under the Yukon’s Conflict of Interest Act if he or his wife Karen Lang own shares in Sherwood.

He doesn’t own any, he said.

But asked about his extended family, his tone hardened.

“It’s got nothing to do with my extended family,” said Lang. “My extended family is out there; I don’t know what they own. I have an obligation, my wife and I, to declare what we own,” he said.

“We don’t own any shares in any mine in the Yukon, and that’s appropriate. And my kids don’t live here and I’m sure they don’t,” he said.

“My immediate family, I really don’t know: they’re adults, at the end of the day, anybody who wants to know what I own they go to the conflict of interest.”

Fentie feels much the same way.

“This is a right — to be able to invest in stocks that you choose to,” said Fentie. “It has no bearing on any minister here. Unfortunately there’s always this attempt to create the perception.

“We can’t start compromising the public because they may have a family member involved in government. Where the hell would this society be?”

Still, the Liberals appear to be interested in probing what cabinet ministers own.

Holding companies owned by MLAs aren’t subject to full disclosure.

And that has raised some questions about who might own shares in Sherwood.

During budget this month, Porter Creek South MLA Don Inverarity asked Economic Development Minister Jim Kenyon — who owns a holding company — if he or his holding companies own any shares in companies currently mining in the territory.

“(T)he full disclosure papers are available to him, as his are to me,” replied Kenyon. “He’s more than welcome to look at them and realize the answer is clearly no.”

Lang owns shares in Fleming Holdings Ltd.

The News has also attempted to find out what rules apply to the presidents of the Yukon Energy Corporation and Yukon Development Corporation.

There are “no specific policies” preventing the purchase of shares, said YEC president David Morrison in an e-mail.

The chair and president of YEC and YDC are not required to disclose information about personal investments — much like deputy ministers and directors and officers of other Crown corporations, he said.

Morrison doesn’t own stock in Sherwood, he said.

But though the News asked for disclosure from YDC president Willard Phelps, Morrison said he would respond for both on the issue.

“The question of whether I or Willard Phelps own stock is a personal question,” he said. “Because of privacy issues I have no right to ask Willard if he owns stock.”

Calls to the Yukon Registrar of Securities, which oversees stock trading in the territory, were directed to larger securities agencies in other provinces.