It took 14 years and a US 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 (USD 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.

For example, Grmovsek cites Ciena Corp's takeover by Tellabs Inc in 1998 as a deal that triggered a wave of insider trading -- other than the trading conducted by him and Cornblum.

He said the Canadian duo sometimes sold their shares before a deal was announced because unusual trading activity beforehand suggested they were not the only ones acting on inside information and they were nervous about an investigation.

Need to be more agile

Kevin Harrison, a lawyer who leads the Toronto branch of a police intelligence unit created in 2003, said his unit had helped prevent white-collar crime,

But he acknowledged it could be more agile and solve additional cases more quickly, provided it got more power, such as the ability to compel third parties to testify as available to authorities in other jurisdictions like the United States.

He said Canadian authorities are being more proactive -- with undercover work, wire tapping and informant development -- and pointed to proposed legislation that would bring fraudsters mandatory jail terms and tighter parole rules.

A 2007 report commissioned by the Royal Canadian Mounted Police said Canada's model was less effective than its U.S. and British counterparts, in part because of the lack of compulsion over third parties.

Another stumbling block is the fact that Canadian securities are regulated on a provincial rather than a federal level, something that industry experts say can make investigations slow and cumbersome.

"It seems to me that we will be much farther ahead if we had one regulator in Canada," Justice Minister Rob Nicholson told Reuters.

The Canadian government wants a national regulator to be set up by 2012.

Less strenuous requirements for prompt disclosure of information that could impact a company's stock price in Canada compared with some other countries may also allow insider trading to flourish.

Lax disclosure

"Insider information is very widespread -- huge opportunities for many people to trade on insider information because of the lax timely disclosure requirements," said Pascutto, who is also a former executive director of the OSC, the main markets regulator in Canada's most populous province.

The OSC has reorganized its insider trading unit to stay in sync with globalized capital markets.

"This unit will identify, investigate and prosecute matters involving illegal insider trading and those that arise out of the increased globalization and fast trading multimarkets that are developing throughout the world," Tom Atkinson, the OSC's director of enforcement, told Reuters in a statement.

Canadian regulators and the Investment Industry Regulatory Organization of Canada (IIROC), a national body that oversees dealers and their trading activity, use software that monitors unusual trading patterns in a similar way to their U.S. counterparts.

Grmovsek's lawyer Joseph Groia, also a former Canadian securities regulator, challenged views that Canada lags the United States, where 20 people have been charged in the past three weeks in an insider trading scandal involving hedge fund managers, top Silicon Valley executives and a bevy of advisers, including consultants and lawyers.

"At times our market place is called the Wild West of the G-8 capital markets, this case shows this is simply not true," he told Reuters. "Canadian regulators get a bum rap and are unfairly compared to their U.S. counterparts," he added.

Still, Grmovsek and Cornblum, were only caught after a tip by the U.S. Financial Industry Regulatory Authority, an independent brokerage watchdog, that noticed their unusual and lucrative trading in relation to two takeovers involving U.S.-listed companies.

And the court documents show that when the two were law students there were insider-trading role models.

Grmovsek said he first discovered the opportunity when a fellow intern bought a flashy new car and said he got the money for it from trading stock based on confidential information.

He become convinced other students were doing the same and decided that illicit trading on inside tips was a crime that pays, and there would be little chance of getting caught. It made him a lot of money over many years before he finally overstretched.