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NDP asks U.S. authorities to investigate trading on NYSE

[PoliticsWatch Updated 3:50 p.m. December 19, 2005]

OTTAWA  — NDP finance critic Judy Wasylycia-Leis and NDP candidate Paul Summerville have written U.S. authorities to ask them to investigate "a possible leak" of Finance Minister Ralph Goodale's November 23 announcement on income trusts. 
Wasylycia-Leis and Summerville, who is a former chief economist with RBC Dominion Securities, are raising suspicion the U.S. markets may have been affected. 

They have written a letter to the director of enforcement of the U.S. Securities Exchange Commission requesting an investigation of Canadian stocks that are also traded on the New York Stock Exchange. 

The SEC does not comment publicly on complaints. 

Goodale's November announcement to lower the tax on dividend yielding stocks and keep in place the tax free status of income trusts has been the subject of allegations of insider trading by opposition parties and some Bay Street watchers.

On the day Goodale announced the changes there was a notable spike in the volume of a number of dividend-paying stocks and income trusts before the decision was made public when the market was closed. 

Goodale has vehemently denied that there was a leak of information from his office. And the media has been reluctant to make the story an election issue. 

Wasylycia-Leis has previously written to the Ontario Securities Commission and the RCMP to request an investigation. The RCMP is reviewing whether an investigation should be conducted and the OSC will not comment on whether or not they are investigating. 

"The irregular trading of November 23 was not limited to Toronto, however," the NDP said in its letter to the U.S. authorities. 

They attacked a spreadsheet of trading of BCE on the NYSE on November 22 and 23 which shows volume increased to 261,400 at 4 pm on the November 23 the same time a spike occurred in BCE's volume happened in Toronto.

BCE pays a high divided on its stock and its price was affected by Goodale's announcement after the market closed. It is also cross-listed, trading on both U.S. and Canadian markets. 

"The evidence points to a possible violation of the Securities and Exchange Act in that individuals may have been exploiting exclusive knowledge of a pending announcement from the Canadian government and using that knowledge for their own personal or employer's benefit," the NDP said in its letter.

"It is likely American investors sold their units in Canadian income trusts and Canadian dividend-paying large corporations in the hours prior to the Minister Goodale announcement.  

"There is evidence to suggest that they may have sold them to professional investors and others who may have received a tip on the pending Canadian government announcement that was not the subject of a Canadian government press release. The SEC, we believe, has an obligation to investigate and protect these investors."

BCE is the only cross-listed company that appears in the NDP's complaint to SEC. The NDP says that having just one company listed on a U.S. market is enough for the SEC to become involved. 

The SEC would not comment on whether they've received a complaint or whether there will be an investigation. 

John Nester, a spokesman for the SEC in Washington, told PoliticsWatch that in cases involving cross-listed companies the SEC can investigate. 

"The bottom line is we'd be principally concerned with the trading that took place in the United States," he said. 

He also said the commission could have jurisdiction if U.S. investors were involved. 

According to Nester, complaints are driven by facts and circumstances. 

"The specificity of the information, the egregiousness of the potential violation, whether investment losses occurred are all the things the enforcement division takes into account when it determines how to proceed on any violation," he said. 

Meanwhile, Wasylycia-Leis is also asking David Wilson, the head of the OSC, to recuse himself from any investigation in Canada regarding the controversy. 

Wilson was recently appointed as head of the OSC, but before that he was chair of Scotiabank and chair and CEO of Scotia Capital. 

The MP said in her letter that observers have pointed to an "abnormally large volume of trading in Yellow Pages Group, Aeroplan Superior Plus and BCE" before the markets closed on November 23. 

She noted that Scotia Capital Markets "was one of the brokers making these large buys," and that puts Wilson in a conflict of interest. 

Wilson has also come under fire in the Ontario legislature, where Ontario NDP MPP Michael Prue last week raised questions about Wilson's ties to the federal Liberal party. 

"One only has to take a quick scan of the Elections Canada Web site to show that Mr. Wilson is an avid financial supporter of the Liberal Party of Canada, the only party to which he donates money," Prue said. 

Ontario Government Services Minister Gerry Phillips, who appointed Wilson, said he was "a man of impeccable integrity," who "is above reproach."

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