Regulators
chasing 'highly suspicious options trading activity' that may have earned
traders $1.7m over Buffett's Heinz deal
 |
| Traders familiar with Heinz options said the contracts were bought starting at 2.22 pm on February 13. Photograph: Oli Scarff/Getty Images |
US regulators investigating potential insider trading in Thursday's $23bn takeover of Heinz have asked a court to freeze the Swiss bank accounts of unnamed traders who may have speculated on the deal before its announcement.
Less than
40 hours after Berkshire Hathaway and 3G Capital announced they were together
buying Heinz, the Securities and Exchange Commission said it was seeking an
emergency court order freezing the Zurich-based assets of the traders and
prohibiting them from destroying any evidence. The SEC said it was chasing
"highly suspicious options trading activity" that may have earned the
traders as much as $1.7m.
The SEC
alleges that the traders knew details of the Heinz acquisition before they had
been made public. "The SEC alleges that the unknown traders were in
possession of material non-public information about the impending acquisition
when they purchased out-of-the-money Heinz call options the day before the
announcement."
On Wall
Street, the only surprise in the SEC's announcement was its speed. The issue of
insider trading was widely discussed among investors interested in Heinz after
the deal. Immediately after the deal was announced, savvy investors noticed
that something was odd about the Heinz option contracts.
Options are
a way for investors to bet on the future price of the stock. Traders noticed
that the afternoon before the deal was announced, an unusual number of Heinz
options contracts – 2,593, to be exact – were bought, particularly betting that
the stock would be worth at least $65 in June. Previously, Heinz stock had not
been worth more than around $60 in over a year.
Traders
familiar with Heinz options said the contracts were bought starting at 2.22 pm
on February 13, the day before the deal, and that they were bought in small
lots. If that proves to be the case, the small lots may have been designed to
evade attention.
The court
order will force the traders to appear in court to explain why they were
trading in Heinz options the day before the deal was announced, said Sanjay
Wadhwa of the SEC's New York Regional Office. He commented on "the obvious
logistical challenges of investigating trades involving offshore
accounts." It is not yet clear how the SEC traced the trades overseas so
quickly.
The SEC
described its method in tracing the unusual trading activity. Heinz has not
been popular with speculators. Its stock and options were very stable and
showed very little action for months beforehand, which made the unusual spike
all the more incongruous.
"The
timing and size of the trades were highly suspicious, because the account
through which the traders purchased the options had no history of trading Heinz
securities in the last six months," the SEC said in a statement.
"Overall trading activity in Heinz call options several days before the
announcement had been minimal."
One trader
who makes bets on mergers said the SEC discovered the unnamed traders because
the options trading was "obvious" and "stupid."
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