The Ontario Securities Commission (OSC) also said it has charged Cowpland's personal holding company M.C.J.C. Holdings Inc. The charges will be heard at the Ontario Court of Justice on Nov. 22. If found guilty, Cowpland could face up to two years in jail, a fine of up to C$1 million (£604,780), and/or payment of three times any profits made. The commission also issued a temporary cease trade order against Cowpland and his holding company, which prohibits them from trading in Corel stock for 15 days. A hearing to extend the order is scheduled for Oct 28 at the OSC. Corel stock was halted on both the Nasdaq and Toronto Stock Exchange before the announcement. The insider trading investigation relates to 1997 trading activity. Cowpland's sale of 2.4 million Corel shares, for C$20.5 million, one month before the firm reported a surprising $32-million third-quarter loss, sent the stock into a 40 percent decline. Cowpland sold his shares when they were trading between C$8.20 and C$8.80. Cowpland, who has said he sold the shares to pay off personal loans, had maintained the investigation was routine and that he would be vindicated. Cowpland issues statement
"I am looking forward to finally having a chance to clear my name by responding to these matters, which are now more than two years old," said Cowpland in a statement. Corel would not answer questions on the charges, stating that it was a private matter between the OSC and Cowpland. "This is the only comment we have," said Stuart McCarthy, Corel vice president of public relations. Some analysts are now asking if Cowpland's future at the word processing and graphics software firm could be in doubt. "It really undermines management. This is the sort of thing that I wouldn't be surprised to have the board call for his resignation," said one analyst, who asked not to be named. "The board's going to have to ask whether this guy is a good enough leader that it's worth having this kind of egg on their face." Three charges
One charge, of tipping, alleges that Cowpland informed his holding company that Corel would fall short of 1997 third-quarter forecast sales by a significant margin. That information was was not publicly known in mid-August. A second charge, of insider trading, alleges Cowpland sold 2.4 million shares of Corel for C$20.4 million in mid-August 1997, using that knowledge. A third charge alleges that on May 20, 1998, Cowpland made misleading or false statements to the commission. "These are not trivial charges," said Duncan Stewart, fund manager at Tera Capital in Toronto. "Making the allegations is easy, proving them is, in all cases, unless people are genuine dunderheads, almost impossible. Very few people write memos to themselves saying: 'Did insider trading today.' and then mail them to the OSC." Corel stock hammering?
A trading halt on the Nasdaq and Toronto exchanges was not lifted after the announcement, leaving the stock to end at C$9.45 on Toronto and $6-1/2 on Nasdaq. Analysts suggest the stock may take a beating in trade Friday. "I'm sure the market will react negatively because it doesn't like to see things like this -- especially from CEOs," said Jean W. Orr, analyst at Nutmeg Securities Inc. in Connecticut. "From a company standpoint, I doubt that it's particularly negative or significant."