The Ontario Securities Commission (OSC) ruled recently that George Albino, the former president of Toronto-based Rio Algom (TSE), unfairly used insider information to make a $52,000 profit from his stock compensation plan. As aresult, Albino has had certain trading privileges removed under the Ontario Securities Act until Jan. 1, 1992.
The OSC ruling is based on events that occurred back in 1986 when existing uranium contracts between Rio Algom and Ontario Hydro were amended to include price and production cuts.
According to the OSC, while Hydro and Rio Algom had reached an agreement in principle by April 4, a press release was not issued to the public until April 29. By delaying the press release, Albino was able to exercise his rights to gains under the employee incentive plan (or phantom stock plan) at a market price that did not reflect the amendments to the Hydro contracts.
“Albino compelled a delay in the timely disclosure of that material change in Rio Algom’s business and affairs until he could cash in his award units under the Rio Algom incentive plan, resulting in a gain to himself of $52,000,” said OSC Vice-Chairman Charles Salter.
However, an OSC panel consisting of Salter and commissioners J.W. Blain and Lea Hansen didn’t agree on the issue of whether a phantom stock plan constitutes a security.
Phantom shares resemble a company’s common shares and are given to senior executives as compensation to reflect changes in the market value of the company’s shares and any dividends paid out to shareholders.
“If the award units are not securities, the connections between the award units and the capital markets are nonetheless so close as to compel action by this commission for the protection of the investing public,” said Salter.
While Blain disagreed, he said Albino’s conduct was not the type one would expect from the chief executive of a large Canadian company.
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