Decision in brief: Kraft, Enforcement Proceeding, Merits, October 20, 2023

In this enforcement proceeding, OSC staff says that Michael Kraft broke the rule against disclosing certain confidential information and Michael Stein broke the rule against insider trading. Kraft was the Chairman of the Board of Directors of WeedMD Inc., a cannabis company. Stein is Kraft’s long-time friend. OSC staff says that Kraft gave Stein information about WeedMD’s planned expansion before that information was public. Stein then bought 45,000 WeedMD shares, which he sold for a profit after WeedMD publicly announced the expansion.

The Tribunal decided that the information about the planned expansion would reasonably be expected to have a significant impact on WeedMD’s share price.

Kraft says that he gave Stein the information for a valid business reason, so he did not break the rule. He wanted Stein’s input on the transaction. He says what matters is what he says about why he told Stein the information, and not what a reasonable person would think based on the facts.

The Tribunal decided that the exception to the rule would apply only if it had been necessary or important to WeedMD’s business for Kraft to tell Stein the information. What matters is not whether Kraft says he thought it was necessary. What matters is what a reasonable person would think based on the facts. Based on the facts, Kraft forwarded an email with the information to Stein, hastily, out of habit and for his own personal reasons. It was not necessary or important to WeedMD’s business.

Kraft says that the rule breaches his constitutional right to freedom of expression because it restricts his ability to discuss information about his company with friends who could provide business advice. His expert was allowed to testify about this issue. The Tribunal decided that Kraft’s constitutional right to freedom of expression was breached, but that the restriction was justified.

The Tribunal decided that Kraft broke the rule against disclosing certain confidential information, and Stein broke the rule against insider trading when he then traded shares of WeedMD.

As a result of this decision, the Tribunal will hold a hearing to decide what sanctions and costs should be ordered against Kraft and Stein because of their conduct.