Alberta Securities Commission panel denies order against short-seller Cohodes

The Alberta Securities Commission has rejected a requested order to prevent American short seller Marc Cohodes from trading shares in or providing misleading information about Calgary-based Badger Daylighting Ltd.

In an oral decision released Wednesday afternoon, the provincial regulator said staff hadn't proved there was an urgent need for the interim order to control Cohodes' activity while a full investigation is undertaken.

"There are insufficient grounds for us to exercise our jurisdiction to make any orders.... Accordingly, we dismiss the application," said Thomas Cotter, chair of the two-member ASC panel.

In a hearing on Wednesday morning, Calgary lawyer Andrew Wilson, acting for the California investor while he listened in by telephone, said the order requested by ASC staff was "deliberately rushed" and based on an incomplete evidence record.

Short selling is lawful, says lawyer

"Being a short seller is not unlawful. It actually does serve an important part in our capital markets," said Wilson.

"The public interest is not just Badger Daylighting. It's much broader than that. It's people who also want to say positive or negative things about companies and it's understanding what role regulators are going to play in the market."

Short sellers sell a security they don't own or have borrowed in hopes its market price will decline, enabling it to be bought back at a lower price to make a profit.

Last week, staff for the regulator announced they would seek the order against Cohodes, an investor who has taken short positions in many companies including Home Capital Group of Toronto, because of statements he made about Badger. Those included a June 27th Twitter post containing a picture of a Badger truck as support for his allegation of its illegal dumping of toxic substances.

The regulator said Cohodes has made numerous negative public claims over a period of more than a year, coinciding with the acquisition of his short position, accusing him of trying to artificially manipulate the price of Badger securities.

Wilson said there's no evidence that any of Cohodes' social media statements caused Badger stock to fall in the short term and, furthermore, the stock has gained about 20 per cent since Cohodes began talking about it on Twitter in May 2017.

ASC counsel Don Young countered that the interim cease trade order was needed to prevent Cohodes from continuing his "protracted campaign" to harm Badger's reputation for his eventual gain and actual share price erosion wasn't integral to the case.

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He said the order would give the regulator time needed to complete an investigation into the short seller's activities, pointing out that accusing Badger of illegal dumping was serious given that proper disposal of material is a vital part of the hydrovac excavating company's business.

Wilson said Badger has the option of pursuing a civil case against Cohodes but hasn't, suggesting it's because his remarks are protected by free speech law in both Canada and the United States.

Badger CEO Paul Vanderberg, who attended the hearing, said he would not comment on the outcome or the possibility of a civil suit against Cohodes.

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