Heinz trading sparks red alert
The action, by the Securities and Exchange Commission (SEC), illustrates the temptation that such big takeovers may present.
Despite a number of prominent crackdowns on insider trading, regulators continue to uncover cases involving traders who spin confidential titbits into illicit profits ahead of deals.
On Thursday, Berkshire Hathaway and the investment firm 3G Capital agreed to buy Heinz, a deal that sent the company's shares soaring.
In a complaint in US District Court in Manhattan, the agency took aim at a Zurich-based account that on paper reaped $US1.7 million in gains after the stock jumped. Freezing the account, the SEC said, will prevent the traders from spending their winnings or moving the money.
But the identity of the traders, who funnelled their bets through a Goldman Sachs customer account, is not yet clear. An SEC statement referred only to "unknown traders" who bought a series of options tied to Heinz's stock. The agency's investigation is continuing. Goldman, which is not accused of wrongdoing, was the conduit for the trades.
"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 non-public information," the head of the commission's market abuse unit, Daniel Hawke, said.
The agency's complaint portrayed a brazen attempt by traders to abuse their position as keepers of market-moving secrets.
Dozens of people had knowledge of confidential information about the deal, including bankers, lawyers and executives at both the buyers and the seller.
The inquiry may cast a cloud over the Heinz deal. Once the traders are identified, the focus will turn to the universe of insiders who could have leaked details of the deal.
Goldman said it was co-operating with the SEC's investigation.
The SEC opened the inquiry on Thursday, focusing on a "highly suspicious" spike in options trading.
Frequently Asked Questions about this Article…
The SEC froze a Zurich-based account routed through Goldman Sachs after uncovering options trades tied to the US$23 billion Heinz acquisition that produced about US$1.7 million on paper. The agency filed a complaint in US District Court in Manhattan and said the freeze will stop traders from spending or moving the money while the probe continues.
Regulators found a ‘highly suspicious’ spike in options trading immediately before the Berkshire Hathaway and 3G Capital takeover announcement. Because the trades appeared consistent with insider trading, the SEC froze the Zurich account used to place those options bets to preserve potential evidence and funds.
Berkshire Hathaway and the investment firm 3G Capital agreed to buy Heinz, a deal that sent the company’s shares soaring and preceded the unusual options trading that attracted SEC scrutiny.
No — the article says Goldman Sachs is not accused of wrongdoing. The bank was identified as the conduit through which the unknown traders funneled their options bets and it is cooperating with the SEC investigation.
The SEC described the activity as irregular and highly suspicious options trading immediately in front of a merger or acquisition announcement, noting traders bought a series of options tied to Heinz stock and reaped about US$1.7 million when the stock jumped.
The article says the inquiry may cast a cloud over the Heinz deal. If the traders are identified, regulators will focus on the universe of insiders — bankers, lawyers and executives — who might have leaked confidential details.
According to the SEC complaint, dozens of people could have known confidential details, including bankers, lawyers and executives at both the buyers (Berkshire Hathaway and 3G Capital) and the seller.
The case highlights that big takeovers can create temptations for insider trading and that regulators actively investigate suspicious trading patterns. For everyday investors, it’s a reminder that takeover announcements can produce sudden stock and options volatility and that market integrity is policed by agencies like the SEC.
Call 1300 880 160
Start a chat
Schedule a call
