February 19, 2013, 5:15pm EST – News reports from Friday revealed that that the SEC in one of the rare occasions of acting expeditiously have frozen several Swiss bank accounts related to excessive purchases of call options in Heinz (HNZ) stock immediately prior to the takeover offer made by Warren Buffet.
According to the complaint, Apparently some investor invested nearly $90,000 in Heinz (HNZ), options immediately prior to the take over bid. Such investor(s) stood to earn more than 1.8 million dollars from their “investment.”
Apparently the following factors made it fairly obvious to the SEC that the investments were highly suspicious to say the least:
1) The timing and size of the purchases of the options. All the options were all purchased the very day before the announced take-over.
2) The account that purchased the options had zero trading in Heinz in the entire six months it was open prior to such purchases.
3) Purchases were made from an offshore account with funds going to a Swiss bank account
4) The overall increase in volume of trading of the subject calls compared to their historic trading pattern.
5) The long term history of the stock trading below $60 per share and the post takeover announcement increase to $72.50 or $7.50 above the $60 strike price of the calls
6) Only one trading day before the announcement the “investor” purchased 2,533 June $65, well out of the money calls, yet since November 14, 2012 only 61 of such calls were ever purchased in total for those three prior months.
As a former securities regulator and prosecutor, the above circumstantial evidence appears pretty damning for the person or persons involved in such purchase. In my opinion this is no Raj Rajaratnam,(see our representation of a Dodd Frank SEC Whistleblower in that case) seeking to cover up their trading. Rather this is some individual who happened to come across inside information regarding the Heinz deal just a day or two before the announcement and decided that he or she would try to make a quick profit. Instead of purchasing a few calls over a time period, he or she rushed in and purchased them all at once, the day before the announcement. They did everything but raise a red flag and say “SEC come and get me.” Perhaps it was someone who resides overseas somewhere where they believe the authorities will not be able to track them down or extradite them, and did not believe the SEC would or could move so quickly to freeze a foreign bank account.
One thing is for sure, as the trading was conducted via a Goldman Sachs (GS) account in Switzerland, the SEC should have easy access to all the information related to who owns such account and who opened such account, so it should only be a matter of time until the identities are revealed. My bet is that it was not someone very sophisticated in the financial world, as although 1.8 million is a lot of dough, it is not a lot when it comes to sophisticated investors, nor would they act so brazenly. In addition, it likely was someone who is in some location in the world that they believe that they are beyond the authorities reach. Either way this appears to be a text book example of everything one would not want to do if one sought to get away with insider trading.
Stuart D. Meissner Esq.