Insider trading hits Heinz deal
February 16, 2013
The Securities and Exchange Commission (SEC) obtained a court order on Friday to freeze a Zurich-based Goldman Sachs account over allegations that it held some $1.7 million (1.27 million euros) in illicit profits made from the acquisition of H.J. Heinz Company.
Warren Buffet's investment firm Berkshire Hathaway and the Brazilian company 3G Capital acquired Heinz on Thursday for some $23 billion, bumping the famous ketchup maker's stocks some 20 percent. Unidentified traders were allegedly tipped off to the deal and used call options to profit from it.
Goldman Sachs, Berkshire Hathaway and 3G have not been accused of any wrongdoing. Tiffany Galvin, a spokeswoman at Goldman, said the company is "cooperating with the SEC's investigation."
Spike in call options
According to reporting by The New York Times, SEC investigators said they became suspicious when they saw a "drastic" rise in trading on Heinz options. Unidentified traders purchased some 2,533 call options on Wednesday, compared to just 14 on Tuesday. The Heinz deal was announced on Thursday.
"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," Daniel Hawke, an SEC official, said in a release.
A call option is a contract that gives a trader the right to buy a stock at a set price at some point in the future in the hope that the stock's value will rise in the interim.
The SEC took action in a similar case involving an acquisition by 3G Capital last September. The US financial regulator ordered a Brazilian man's bank account frozen, after he was allegedly tipped off to 3G's acquisition of the fast-food chain Burger King.
That trader worked for the US bank Wells Fargo and reportedly received the tip from someone inside 3G, which is owned by Jorge Lemann, one of Brazil's richest men.
slk/ccp (AP, dpa)