Monday, July 31, 2006

Senators owner accused of insider trading

Since I know most hockey bloggers wouldn't touch a story like this with a 10-foot pole (and haven't yet), I decided to ask a business journalist friend for an idea of what these accusations mean for the Ottawa Senators and owner Eugene Melnyk.

The following is his layman's terms break down:
It basically means that the Ontario Securities Commission (or OSC, the body that regulates stock markets in Canada) thinks Melnyk has been doing some funny stuff.

He's an "insider" at Biovail, which means he is privy to important information that has a material impact on what might happen to the stock price, only he knows about it well before anyone else does via a press release from the company. Which is unfair.

The insinuation is that he can dump his shares the day before he knows his company is about to announce crappy results. Or vice versa. Joe Public can't do that. It's like gambling when you know what the next card in the deck will be. It's cheating.

Insiders are allowed to trade, but they have to be a lot more public about it. I can trade 1,000 shares in Biovail without the OSC batting an eyelash, because I'm not privy to any secret info. If I make tons of cash on the deal, hey good for me — I was smart. But if Melnyk trades 1,000 Biovail shares, he has to file a bunch of disclosure papers, which are then released to the general public, which basically say "the CEO of Biovail is selling/buying shares in his company. This may or may not mean he thinks shares are about to go up or down."

Specifically, in this case, he's not being charged with insider trading, which is an out-and-out crime. They're just alleging he basically got around insider-disclosure rules by creating trusts that own shares for him on his behalf. So he can say, "I didn't sell these shares. This trust, XYZCorp, did — never mind that I actually control XYZCorp, too."

In terms of the Senators, even if charges come about and even if he's guilty, I doubt it means anything for the franchise. The Sens are a very small part of his net worth. Even if he went to jail — he's not — and even if he gets a huge fine — possibly — it would never be enough to force him to need enough cash that he'd half to sell the franchise. These fines tend to be in the six-digit or maybe seven-digit range. Melnyk's got way more than that.

He'd only sell the team for two reasons:

1. Bettman grows a pair of orbs and says "we don’t want crooks in our league so you're out" —but that won't happen since there are NHL owners that are way more shifty than Eugene.

2. He suddenly tires of having his little toy to play with.

In short, I'd say it's pretty small news from a hockey impact.

From an investor standpoint, if you own shares in Biovail (like I do) it's just one more in a long line of stomach punches from that company.
Apologies for the length, but I do think this is something that is making a lot of hockey fans in Ottawa wonder, 'what does this mean?'


At 11:04 p.m., July 31, 2006, Blogger DCThrowback said...

As much as I dislike the Sens, no one wants to see them get Rigased.

At 9:44 a.m., August 01, 2006, Blogger Alana said...

Biovail is a sketchy, sketchy company. Their annual report is like a textbook on how not to govern a corporation. They've also been accused of creative accounting in the past. Stay away, investors.


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