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December 8, 2005
More Evidence Of Insider Trading In Canadian Scandal

Last month I posted about a potential new scandal brewing for the Liberal Party in Canada involving insider trading on speculation about tax policy. Now it appears that more evidence and testimony gives credence to the charges that the government leaked advance warning on its tax policy to certain investors, allowing them to take advantage of the information to maximize their profits at the expense of other investors:

In the two weeks since Canada's Finance Minister announced a tax cut to dividend-paying stocks, the big question in financial and political circles is whether some people had advance notice of his Nov. 23 announcement. A CTV Whistleblower investigation into what happened that day has found that may have been the case. ...

Ralph Goodale's announcement was good news for income trust investors -- and those who buy dividend-paying stocks. He reversed his earlier plan to possibly tax the trusts. He also decided to cut taxes on dividends, to help dividend-paying stocks look as attractive to investors as the popular income trusts do.

But, some of those stocks jumped inexplicably late in the afternoon, hours before Goodale told the Canadian public anything about his plan. CTV found more evidence of a possible leak than just that jump in trading.

First, several credible sources in financial circles confirmed to CTV they heard definitively -- before the markets closed -- that an announcement would be coming after the close of trading that day.

Many people were exchanging emails, about an anticipated 5 p.m. news conference. That seemingly advance notice contradicts the Finance Department's position that they told no one -- not even privately -- about the timing of the hotly anticipated announcement, not the day or the hour it would come.

Hours before the government announced its decision, people began posting rumours of the impending decision on bulletin boards and in e-mails. In language very close to that used in Goodale's announcement, two people posted at 11:14 and 3:59 -- the latter two hours before the announcement -- that Goodale would announce a reduction in dividend taxation to "level the playing field" and that the reduction would take the form of an increase in the dividend tax credit. Later that evening, Goodale did eventually announce that the government would "help to level up the playing field as between corporations and trusts and we're going to be doing that by ending double taxation on dividends," when he met with the press.

This could still be coincidence, but some market analysts disagree. They claim the text match is too specific and that the pre-release activity show certain investors working off of a plan that specifically took advantage of this policy just before its announcement. So far, the RCMP and the Ontario Securities Commission have yet to investigate, but given the earlier corruption of Adscam, it would appear that this warrants some kind of check before the evidence disappears altogether.

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Posted by Ed Morrissey at December 8, 2005 7:13 AM

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