Is Arbitrage Illegal in Canada?

A bunch of mutual funds were assessed penalties by Ontario's pseudo-judicial and unfortunately autonomous Ontario Securities Commission [OSC]. The mutual funds did nothing illegal. They did, however, allow fifteen large traders to move into and out of the funds they managed without charging these traders a premium (which their prospecti said they would charge) for short-term market timing. The CBC (which seems more-than-eagre to believe anyone dealing with large funds is evil) quotes the OSC:

"When certain investors engage in frequent trading market timing in foreign funds, and when those investors are not required to pay a proportionate fee to the fund, the economic interest of long-term unitholders of these foreign funds is adversely affected."

I am probably missing something, but I don't follow this. Weren't the market timers just moving prices a bit, in the very short term, toward where the prices were headed anyway? Or were they getting some advantages not available to "the little investor"? And even if they were receiving these advantages, why is this particular activity harmful to long-term unit-holders if all it does is move the price a bit overnight closer to the next morning's beginning equilibrium price?

Even if I am incorrect in questioning the OSC in this instance, they are well below reproach. Read what my colleague, Joel Fried, has to say about them.