SEC freezes Swiss account after suspicious Heinz trades
The Securities and Exchange Commission sued to freeze assets at a Zurich-based trading account that reaped $1.7 million in gains trading ahead of Thursday’s buyout of Heinz.
The New York Times
NEW YORK — Regulators investigating possible insider trading in the $23 billion takeover of H.J. Heinz have frozen an account linked to suspicious trades, according to a court filing Friday.
In the filing made in U.S. District Court in Manhattan, the Securities and Exchange Commission (SEC) took aim at a Zurich-based trading account that reaped $1.7 million in gains. The emergency action, the SEC said Friday, will prevent the suspects from hiding their winnings or moving the money to another account.
The identity of the traders is not yet clear. An SEC statement referred only to “unknown traders.” The agency said its investigation is continuing.
“Irregular and highly suspicious options trading immediately in front of a merger or acquisition announcement is a serious red flag that traders may be improperly acting on confidential nonpublic information,” said Daniel Hawke, head of the SEC’s market-abuse unit.
As the agency took action Friday, it could cast a cloud over the Heinz deal. Authorities will no doubt turn their focus toward the limited universe of insiders who tipped traders to the takeover.
The SEC opened the insider-trading inquiry as Berkshire Hathaway and the investment firm 3G Capital agreed Thursday to pay $72.50 a share for Heinz. The inquiry, the SEC said, is centered on a “highly suspicious” spike in options trading that came as rumors of the deal circulated Wall Street.
On Wednesday, using what is known as a call option, the traders placed a bullish bet on Heinz, without actually committing to buy the company’s shares.
Instead, the investors have the opportunity to buy at a given price in June.
The unnamed suspects purchased 2,533 call options, spending nearly $90,000. The SEC called it a “drastic” uptick in trading.
For months leading up to the deal, there was scant activity in Heinz options. On Tuesday, for example, only 14 call options were bought on Heinz. A day earlier, there was zero trading activity.
The SEC was alarmed by both the volume of trading and the origin of the bets.
The traders who purchased the options, the SEC said, had no history trading Heinz over the last six months.
“The timing, size and profitability of the defendants’ trades, as well as the lack of prior history of significant trading in Heinz” in the account, the commission said in the court filing, “makes these trades highly suspicious.”