In the TSX Company Manual there is, in general, a 15% limit on discounts to market price on private placements to insiders.  However, in recent years the TSX has failed to apply the spirit of the rule to more than a dozen deals involving oil and gas exploreco spin-off listings where discounts of 70% were common and dilution of public shareholders was sometimes in excess of 100%.  The deals were structured so that the private placement to insiders took place immediately before the start of trading.  These deals resulted in the transfer of wealth from public shareholders to insiders.

These spin-off deals mostly went away with the federal government’s October 2006 announcement on income trusts.  However, the spin-off and associated deeply discounted and dilutive private placement to insiders returned in the summer of 2008 with a plan of arrangement involving Accrete (GZ-TSX). We opposed the Accrete private placement in correspondence with the company and regulators and had prepared an op-ed article for publication.  We decided not to go public on this transaction as the credit crisis and the market crash in junior oil & gas company shares had wiped out most or all of the discount between the date the Accrete deal was announced and the time of the Accrete shareholders meeting.