CEO fired for trading in blackout period

Sigma Lithium

22/11/2023 20:45

By Fabio Teixeira
       RIO DE JANEIRO, Nov 22 (Reuters) - The former co-CEO of
Sigma Lithium  SGML.V  SGML.O , a leader in Brazil's budding
lithium sector, was fired earlier this year for trading its
shares during a quarterly earnings blackout period, according to
legal correspondence in a civil lawsuit, trading data and two
people familiar with the matter.
    Vancouver-based Sigma Lithium, which did not reply to
questions about the dismissal, gave no reason to investors when
announcing the exit of Calvyn Gardner, who was co-CEO with his
wife Ana Cabral-Gardner until January 2023.
    Gardner's ouster touched off a series of lawsuits in Brazil
and the United States, along with a broader management shakeup,
revealing boardroom turmoil at the lithium miner as it tries to
sell itself to car firms and big battery industry players.
    Gardner and Cabral-Gardner, who are getting divorced, did
not respond to requests for comment.    
    Previously unreported legal correspondence show the company
told Gardner's lawyers in a July letter that he was dismissed
over share sales in January. His lawyers acknowledged those
trades in a letter to Sigma in August, but said he had been
unaware of the firm's restrictions on what they described as
"routine" trading.
    Public data from Canada's System for Electronic Disclosure
by Insiders (SEDI) shows that Gardner sold 500,000 shares for
about $13.3 million between Jan. 11 and 12, ahead of Sigma's
planned annual report.
    It is not a crime to trade during a blackout period, two
legal experts told Reuters, but any trades based on material
nonpublic information would be considered a violation under
North American securities law.
    The company said in its July 31 letter to Gardner's lawyers
that he "possessed and may have used" privileged information
"relating to the company's ongoing M&A process" in the trades.
In their Aug. 4 reply, his lawyers denied he had traded using
any non-public material information.
    Sigma, which is listed in Toronto and New York, did not
respond to questions about its restrictions on insider trading.
    The Canadian Securities Administrators did not reply to a
request for comment on whether Gardner's trades could be a
securities violation and whether they were under investigation.
    A U.S. Securities and Exchange Commission spokesperson
declined to comment.
    Blackout periods for trading by insiders are a common
corporate restriction ahead of quarterly results, when
executives and board members are most likely to have nonpublic
information that could affect share prices. 
    Stephen Cohen, head of the regulatory practice at Sidley
Austin LLP, said corporate discipline can vary for insider
trading during blackout periods. Minor violations can lead to a
warning, while trading with material nonpublic information is
often a fireable offense, he said.
    Gardner's lawyers accused Sigma in the correspondence of
acting disproportionately and in "bad faith" when it fired him.
They cited the fact that another Sigma insider, Vicente Lobo
Cruz, traded during a blackout period and went unpunished. 
    Cruz, who is co-chair of the Sigma board's technical
committee, sold 184,190 shares on Aug. 5, 2022, two weeks ahead
of Sigma's quarterly results, according to SEDI data.
    Cruz did not reply to a request for comment. Reuters could
not determine if Cruz was investigated or punished by Sigma.
    Two people with knowledge of the situation said tension had
been mounting last year between the co-CEOs, and Cabral-Gardner
seized on her husband's trading as justification to convince
Sigma's board members to fire Gardner.     
    After leaving Sigma, Gardner filed at least four lawsuits
against his wife in Brazilian courts seeking to revert her
decisions involving their shared assets. One of them included
his lawyers' correspondence with Sigma about his dismissal over
the January trading.
    In August, Sigma sued Gardner in New York, for allegedly
misappropriating documents from the firm. Gardner has not
commented on the case.

 (Reporting by Fabio Teixeira
Editing by Gabriel Stargardter, Brad Haynes and Rosalba O'Brien)
 ((Fabio.Teixeira@thomsonreuters.com; +55 21 99603-4782;))