ANALYSIS - Canada struggles to tackle insider trading problem

By Pav Jordan and Jennifer Kwan

TORONTO (Reuters) - It took 14 years and a U.S. tip-off to bring the perpetrators of Canada's biggest insider trading scheme to justice, raising questions about Canada's ability to crack down on white collar crime.

The case centers on a scam that netted some C$10 million ($9.3 million) for law school buddies Stan Grmovsek and Gil Cornblum in 46 insider trades in Canada and the United States.

Cornblum, long prone to depression, committed suicide last month. Grmovsek has pleaded guilty to three counts of insider trading and was told by a judge on Friday that he could face 39 months in prison and millions of dollars in fines and restitution.

For many, the case exposes Canada as a playground for insider trading and revives painful memories of the 1997 Bre-X scandal, when the Calgary gold miner went from a penny stock to a C$6 billion company on the strength of drill results that were found to be salted with gold.

In 2007, eight years after the Ontario Securities Commission brought charges, the lone key figure charged in that scandal, John Felderhof, was found not guilty of insider trading and misleading investors.

"It's generally accepted that there is insider trading in advance of the majority of takeover bids in this country and that the situation in Canada is worse than a number of other markets," said Ermanno Pascutto, executive director of Fair Canada, a group advocating for investor rights.

The statement of fact for Grmovsek's guilty plea indicates that his illicit activities may be just the tip of the iceberg in Canadian insider trading.

The 40-page court document outlining the case against Grmovsek is peppered with references to broader insider activity, some of it so rampant the pair feared being caught in a net meant to snare others.