A former master grower for cannabis grower WeedMD Inc. WeedMD tipped off an investment adviser with inside information about a major production expansion two weeks before the deal was announced, the Ontario Securities Commission has alleged.
Taylor Carr, a former production official for the Aylmer, Ont.-based company, allegedly told Trevor Rosborough some time near Nov. 10, 2017, about an impending lease deal that would increase the company’s annual production from 1,200 to 21,000 kilograms, OSC investigators claim.
That same day, Mr. Rosborough bought 1,090 shares of WeedMD, which trade on the TSX Venture Exchange, and encouraged clients and associates, including Mr. Carr, to invest, the OSC alleges.
One of those associates, the OSC alleges, was Dimitri Graham, a London, Ont.-based mutual fund dealer with National Bank Financial Inc. On Nov. 15, 2017, Mr. Graham bought 3,185 shares in WeedMD, and six days later, a day before the expansion was announced, bought another 1,300 shares, the OSC alleges. The three men sold all their shares on Nov. 22, 2017, the day the expansion was announced to the public.
In a statement of allegations released Tuesday the OSC does not detail how much the men pocketed from this alleged scheme, except to say they made a “modest profit.”
Historical stock prices suggest, however, that the advisers likely did not strike it rich from the alleged inside information. Based on the number of shares they allegedly bought and sold, and the price of WeedMD’s stock at the end of trading on those days, Mr. Rosborough may have made around $700 and Mr. Graham about $2,500. The statement of allegations doesn’t detail how many shares were purchased by Mr. Carr.
“These profitable trades were a result of insider trading and tipping, and therefore significant breaches of Ontario securities law,” the OSC said in its statement of allegations.
None of the men responded to requests for comment. Mr. Carr’s LinkedIn page states that he left WeedMD in October of this year.
In a statement, WeedMD’s vice president of communications, Marianella delaBarrera, said the company was aware of the matter but could not comment further while it was before the commission.
“We take breach of trust allegations very seriously and fully expect and trust our staff and insiders to conduct themselves with integrity, professionalism, and absolute discretion,” she said.
About two weeks before the alleged insider tipping took place, Mr. Rosborough had been terminated from his position as a mutual fund dealer at Quadrus Investment Services Ltd. for allegedly obtaining and using pre-signed forms.
The OSC says the dismissal had the effect of suspending his registration as an investment adviser – meaning that at the time he was advising clients to trade in WeedMD, he was unregistered. In May of this year, Mr. Rosborough also agreed to a five-year suspension of his registration with the OSC after he was found to have advised clients through “stealth” after his termination from Quadrus. After leaving the firm, Mr. Rosborough continued to advise clients by using two registered investment advisers, one of whom was Mr. Graham, to execute trades on his behalf.
The OSC also alleges that Mr. Graham misled investigators about his history with Mr. Rosborough during its insider-trading probe.
Among the possible penalties, OSC staff are asking for the three men to be barred from trading for a period of time yet to be determined, as well as a disgorgement of profits and a fine of not more than $1-million.
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Greg McArthur