SEC sues over Heinz option trading before buyout

Sat Feb 16, 2013 2:07pm EST
 

By Ben Berkowitz

(Reuters) - Securities regulators filed suit on Friday 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 Inc and Brazil's 3G Capital.

The suit marks the second time in six months that the SEC has taken legal action for alleged insider trading on a 3G deal.

The suit, in federal court in Manhattan, cites "highly suspicious trading" in Heinz call options just prior to the February 14 announcement of the deal. The regulator has frequently in past filed suit against unnamed individuals where it has evidence of wrongdoing, but is still trying to uncover the identities of those involved.

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.

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 Group Inc 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 nonpublic 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.   Continued...

 
The Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst