Published: Saturday February 16, 2013 MYT 9:15:00 PM
SEC files lawsuit over Heinz option trading
NEW YORK: U.S. securities regulators on Friday filed suit against unknown traders in the options of ketchup maker H.J. Heinz Co, alleging they traded on inside information before the company announced a deal to be acquired for $23 billion by Warren Buffett's Berkshire Hathaway and Brazil's 3G Capital.
The suit, filed in federal court in Manhattan, cites "highly suspicious trading" in Heinz call options just prior to the February 14 announcement of the deal.
That trading, the suit said, caused the price of the particular call option they bought to soar 1,700 percent and generated unrealized profits of more than $1.7 million.
The regulator claims the traders are either in, or trading through accounts in, Zurich, Switzerland. The account had no history of trading in Heinz over the last six or so months, the SEC said.
It has also obtained an emergency order to freeze assets in the Swiss account linked to the trading. In the suit, the SEC refers to the account as the "GS Account," and in a statement Goldman Sachs said it was cooperating with the regulator's investigation.
"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," Daniel Hawke, chief of the SEC's Division of Enforcement's Market Abuse Unit said in a statement.
Representatives of Heinz and Berkshire Hathaway were unavailable for immediate comment. A 3G representative declined to comment. The founder of 3G, Jorge Paulo Lemann, is from Brazil but has made a home in Switzerland since the 1990s. He has not been implicated in any wrongdoing related to the deal.
After the deal was revealed on Thursday, options market experts called Wednesday's trading "suspicious and incredibly well-timed.
The suit marks the second time in two years that controversy has erupted over trading in a Berkshire acquisition target.
In March 2011, Berkshire struck a deal to buy the chemical company Lubrizol for $9 billion. Less than three weeks later, Berkshire said Buffett's lieutenant David Sokol was resigning, and disclosed that Sokol had been buying up Lubrizol shares while pushing Buffett to acquire the company.
The SEC dropped a probe into Sokol's trading earlier this year.
The suit is Securities and Exchange Commission vs. Certain Unknown Traders in the Securities of H.J. Heinz Co, U.S. District Court, Southern District of New York, No. 13-1080. - Reuters