The Ontario Securities Commission has launched an insider trading case, alleging that an Ontario woman and her son realized over $320,000 in illegal profits by trading on information that she had gained as a senior accountant with Kingsway Financial Services Inc. (TSX: T.KFS, Stock Forum).
In a notice of hearing that was released on December 14th, the OSC is alleging that Helen Kuszper tipped off her son Paul to the fact that Kingsway would report a material loss for its first quarter 2008 financial results before that information had been publicly disclosed.
Starting on April 29, 2008 and until the material loss was publicly disclosed on May 7, 2008, the OSC alleges that the Kuszpers traded strategically and deceptively in Kingsway puts and calls with the knowledge that Kingsway’s share price would decline.
After the bad news was released on May 7, Kingsway’s share price fell dramatically. The stock price closed the next trading day at $9.97, marking a one-day decline of 30% from the closing price of $14.26 the day before.
Helen Kuszper is a resident of Mississauga, Ont. and was employed as a senior accountant in the Investment Reporting Group of Kingsway during the period when the alleged infractions supposedly occurred. At the same time, her son Paul was working as an accountant in St. John’s Antigua.
The OSC said Helen Kuszper’s responsibilities included reviewing the first-quarter financial results before they were made available to the public.
On May 7, 2008 (after the close of trading) Kingsway reported a net loss of $34.4 million for its first quarter 2008 financial results. In a press release the company described the results as unacceptable and said they were primarily attributable to a $52.8 million reserve increase at its American subsidiary Lincoln General.
The material loss of the first quarter of 2008 came to be reflected in Kingsway’s draft quarterly financial statements on April 29, 2008. On this day, the draft financials were revised to incorporate the Lincoln Reserve increase that caused Kingsway’s income to dramatically decline and reflect a net loss of $26.4 million.
It was on the same day, according to the OSC overview of allegations, that the Kuszpers began to trade with the benefit of Kingsway’s undisclosed material loss.
The Kuszpers often discussed their illegal trading in code, the OSC alleges.
The total profit realized by the Kuszpers from their alleged trading (after accounting for commissions) is at least $321,772, according to the OSC. Of this amount, Helen allegedly realized $173,080, while Paul realized an alleged profit of $148,692.
The OSC has scheduled a hearing on January 27 in Toronto to consider the case.
Meanwhile, the respondents are assumed to be innocent until these allegations are tested in a court of law.
Kingsway is a property and casualty insurance company, specializing in providing non-standard automobile and trucking insurance throughout North America.