Trustscam Leaks Flood Bay Street

M.K. Braaten is one of the Blogging Tories' more financially astute bloggers, so there's no doubt that he'll be all over the income trust insider trading scandal.

Look at the quotes from some top Bay Street insiders and you'll see the first cracks in Ralph Goodale's defence:

Don Drummond, VP/Chief Economist: CTV said that Drummond told them he first heard about the announcement via email, 4 hours in advance of announcement. Also, stated that Liberal strategists in Ottawa were the source of email. CTV quoted Drummond as saying “A lot of people seemed to know there was an announcement coming and a few people seemed to know what it was.”

Jim Leech, Teachers pension fund - CTV said that Leech received emails at about 2 pm stating that the announcement was guaranteed. CTV Quoted Leech “I got a bunch of emails around 2pm saying for sure Goodale was making an announcement after the close.”

Sandy McIntyre, Sentry Select Capital: CTV reported he sent the following email: “There is a strong rumour out of Ottawa that Goodale is going to pronounce after the close today his trust solution…hope my sources are right!” Mcintyre said his sources were quoting ‘well connected Liberals’.

Richard Nesbitt, CEO TSX Group: According to CTV, Nesbitt purchased $759,000 worth of stocks hours before the announcement and made $100,000 in profit the next day. However, he could not be reached for comment, yet his spokesman said that he was only filling up his core holdings before the calendar year end.

McIntyre didn't just sit around either; he took his suspicions to the Ontario Securities Commission once he heard the news:

"It's pretty clear somebody leaked this thing and they should be held responsible," McIntyre says now. "We had a 5 to 7 per cent move in heavily traded securities in the last three to four hours before the close ... (which) indicates there was information available to the buyer that wasn't available to the seller.

"You had large investors enjoying a substantial windfall in profits and once again the small investor got screwed," McIntyre says, adding he wrote a letter of complaint to the Ontario Securities Commission on Nov. 24 about the income trust imbroglio. The securities regulator's response advised him to file a formal complaint, McIntyre says.

The S&P/TSX capped income trust index rose 1.5 per cent on Nov. 23 and the Yellow Pages Income Fund, among Canada's largest income trusts, rose 3.4 per cent — all before Goodale said at a 6 p.m. press conference in Ottawa that the government doesn't plan to tax income trusts, high-yield securities worth $170 billion.

Underscoring the importance of the announcement, the S&P/TSX capped income trust index the following day soared 4.4 per cent, its biggest gain in at least eight years.

The rest of the Toronto Star article in question downplays the idea that anybody was caught insider trading, with quotes from other Bay Street fund managers and economists claiming that speculation about proposals not to tax income trusts would have already been making their way around, and trading decisions made accordingly.

Perhaps. Bay Street and the Department of Finance know each other's moves pretty well, and major announcements usually get proceeded by rumours.

But whether the rumour was known to everyone on Bay Street or not is irrelevant in determining if insider trading took place. Just because everybody else guessed the same way as the insider traders did is no excuse for the leak, or for the insider trading.

Especially for the head of the TSX. People will be calling for his head shortly, if this scandal gets any worse, and even if his income trust trades were made legitimately, just because of the appearance of impropriety.