Sunday, November 27, 2005

Inside Job

Does insider trading count as organized crime to you?

On Friday, CBC News reported that trading in many income trusts and dividend-paying stocks became much heavier than usual late Wednesday – just before the government announced that it would not tax trusts and would cut the tax on stocks that pay dividends.

And several published reports said investors knew early about the plan, which lowers taxes on some stock returns.

"Clearly, there was a leak between 2 and 4 [p.m. EST]," forensic accountant Al Rosen said.

The numbers don't lie:

For example, the share price of BCE, which pays a rich dividend, climbed 4.9 per cent on Wednesday. The last hour featured a noticeable uptick in price and volume.

Similarly, income trusts like Aeroplan Income Fund and Yellow Pages Income Fund saw their unit prices jump 6.1 per cent and 6.6 per cent, respectively. Volume and prices turned up in late afternoon trading.

"We are seeing much greater rises that tell us someone knew or many people knew it [the coming Goodale announcement] was not just a clarification, but that dividends would be taxed at a lower rate and [income] funds would not be taxed at all," Rosen said.

Was John McKay deliberately kept out of the loop when he told the press that income trust dividends would be taxed to allow for a measure of plausible deniability ("If the parliamentary secretary didn't know, the traders sure as hell didn't!")?

Don't expect any answers soon about insider trading. The TSX and OSC will bury their investigation findings PDQ regardless of who wins the election. No point in exposing a practice everybody knows has been going on every budget time during "consultations".

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