A Toronto lawyer accused of illegally funnelling information to a former law school classmate as part of a multi-million-dollar fraud and insider trading scheme has killed himself, just a day before the Ontario Securities Commission planned to announce a settlement agreement with the two lawyers.
Gil Cornblum, 39, a former partner with the law firm Dorsey & Whitney LLP, died early Monday morning, according to Stanko J. Grmovsek, the law school classmate and co-accused in the scheme.
Toronto Police said a man was rushed to hospital after being found below a bridge in the Don Valley shortly after 7 a.m., but later died from his injuries.
“It’s a tragedy,” said Mr. Grmovsek, 40, who met Mr. Cornblum in 1990 at Osgoode Hall Law School, where the two became friends. Mr. Cornblum was Mr. Grmovsek’s best man at his wedding in 2000.
According to a Statement of Allegations released yesterday by the OSC, the two friends elicited trading profits estimated at US$9-million over a 14-year period.
The allegations follow a joint international investigation by the OSC, the U.S. Securities and Exchange Commission and the RCMP Integrated Market Enforcement Team.
While a settlement agreement was reached between the OSC and Mr. Grmovsek, the RCMP also laid criminal charges against Mr. Grmovsek, who appeared in Old City Hall Court in Toronto yesterday and entered guilty pleas to all charges against him.
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Later, he appeared at an afternoon hearing before U.S. District Judge Naomi Reice Buchwald in Manhattan and pleaded guilty to conspiracy to commit securities fraud by insider trading.
“I engaged in a process of insider trading over a number of years,” Mr. Grmovsek told Judge Buchwald. “I gained profits from such activity, which I split with my associate.”
He faces a possible 37 to 46 months in prison under federal sentencing guidelines on the U.S. plea.
The OSC alleges that after completing law school in 1994, Mr. Cornblum and Mr. Grmovsek began operating a scheme in which Mr. Cornblum sought out and obtained information about pending corporate transactions through his role when he was first an articling student and then lawyer at various law firms. He would then communicate the information to Mr. Grmovsek using pay-phones and calling cards.
Mr. Cornblum would gain knowledge of future business deals through a number of covert exercises, including using temporary passwords for night-time secretarial staff to search law firm computer databases and making early morning searches of the hallways, photocopy rooms, fax machines and files of law firm colleagues, according to the OSC document.
Mr. Grmovsek allegedly used this insider information to buy or sell, either directly or indirectly, securities mainly traded on U.S.-based exchanges. According to the OSC, the trading generally occurred in two time periods: September 1996 to August 2000 and May 2004 to April 2008, when Mr. Cornblum worked in the Toronto office of Dorsey &Whitney LLP.
The statement of allegation says the two hid their activity by funnelling money through various brokerage accounts opened in corporate names in the Bahamas. They allegedly used only verbal trading instructions to avoid paper trails and kept their profits in accounts located in both the Bahamas and the Grand Cayman Islands before using “covert methods” to bring the money back into Canada.
“In total, Cornblum tipped Grmovsek of material, nonpubl ic information and Grmovsek traded while in possession of that material, nonpublic information in advance of news releases related to 46 corporate transactions involving securities publicly listed in Canada and the United States,” says the statement of allegation.
The RCMP says after intense negotiations in Canada and the U.S., Mr. Grmovsek turned himself over to police on Monday and was arrested but subsequently released on his own recognizance. According to the SEC, Mr. Grmovsek is unemployed, and briefly practiced corporate and securities law in Canada in the mid-1990s.
Under the settlement agreement, Mr. Grmovsek is permanently banned from trading in all securities and must pay the OSC $1.2-million obtained as a result of his non-compliance with Ontario securities law.
Mr. Cornblum advised on Yamana Gold Inc.’s February 2006 acquisition of Desert Sun Mining Inc. as well as Goldcorp Inc.’s August 2006, acquisition of Glamis Gold Ltd., according to a profile on Dorsey & Whitney’s website, which was removed after he and Grmovsek were charged in May 2008.
Dorsey & Whitney fired Mr. Cornblum after he was accused by the Ontario Securities Commission in connection with the insider-trading scheme.
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