Nov. 6 (Bloomberg) -- Stan Grmovsek, a former Canadian stock trader, will be sentenced to 39 months for illegally using inside information on pending mergers and acquisitions, a judge said. It will be the longest term ever imposed for insider trading in Canada.

“This is an entirely appropriate and justified sentence,” Ontario Superior Court Judge Robert Bigelow in Toronto said today after a prosecutor and defense lawyer urged him to accept the term, agreed on by both sides. “It has a strong denunciatory and general deterrent effect.”

Bigelow delayed imposition of the sentence until Jan. 7, after Grmovsek is sentenced on parallel charges in the U.S.

Grmovsek and Gil Cornblum, a former Dorsey & Whitney LLP lawyer in Toronto, made more than C$10 million ($9.4 million) from the scheme from 1994 to 2008, prosecutors said. Cornblum killed himself Oct. 27, a day before he was scheduled to plead guilty.

Grmovsek pleaded guilty in Toronto to executing at least 46 trades after Cornblum obtained information on mergers and acquisitions at law firms where he worked.

The deals included the $7.1 billion acquisition of Ciena Corp. by Tellabs Inc., announced in June 1998, resulting in a 7.3 percent rise in Ciena stock. The deal was terminated in September 1998 after Grmovsek got what he described in a statement to investigators as a “ton of money” from the sale of Ciena options.

Las Vegas Casinos

The scheme also involved laundering money through Las Vegas casinos, where Grmovsek said he would bet on both teams in a sporting event. Grmovsek would mail the winning ticket to the casino and receive a check in the mail in return, he said in the statement.

“The offenses are simply deplorable,” John Corelli, the prosecutor, told the judge. “Their actions taint all.”

Grmovsek was charged with three crimes: fraud, for trades that were conducted before insider trading became a crime in Canada; insider trading for acts after it was criminalized; and money laundering. He faced a maximum jail term of 10 years.

Corelli said the 39 months agreed to by the prosecutor and Grmovsek is within the range of three to five years recommended by the Court of Appeal for Ontario, as well as the sentencing guidelines given judges in the U.S.

It’s the first time a sentence was imposed for insider trading under the Criminal Code of Canada.

Prior Top Sentences

Earlier prosecutions were done by regulatory agencies, and the toughest sentences handed down were a six-month jail term and a C$2 million fine for Glen Harper, former chief executive officer of Golden Rule Resources Inc., and a six-month term for Andrew Rankin, a former Royal Bank of Canada banker convicted of illegally funneling stock tips to a friend.

Rankin’s conviction was thrown out by an appeals judge and he agreed to pay C$250,000 to settle the charges after the Ontario Securities Commission said it planned to retry the case.

Grmovsek agreed to give up the profits from the illegal trades, paying $1.47 million to the U.S. Securities and Exchange Commission and C$1.28 million to Canadian authorities.

“Grmovsek, at the end of this, will be essentially destitute,” Joseph Groia, his lawyer, said today in court.

The plea agreement is an “answer to those who say Canadian regulators cannot police the capital markets,” Groia said.

‘Moronic’ Trading

Grmovsek said his trading had become “moronic” by 2008 and the Financial Industry Regulatory Authority, an independent regulator of about 4,800 brokerages in the U.S., grew suspicious of the timing of his trades.

Finra identified Dorsey & Whitney as a law firm involved in several deals and referred its suspicions to the SEC and the Ontario Securities Commission.

Cornblum was found below a bridge in Toronto Oct. 26, a day before he was scheduled to plead guilty to the charges with Grmovsek. He died from his injuries in a hospital.

“It was no one’s intention that these proceedings should end so tragically,” Corelli told the judge, his voice breaking.

The Canadian case is Between Ontario Securities Commission and Stan Grmovsek, 08-cv-7508, Ontario Superior Court of Justice (Toronto). The U.S. case is U.S. v. Grmovsek, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net; Robert Delaney in Toronto at robdelaney@bloomberg.net.

Last Updated: November 6, 2009 16:06 EST