Regulators investigating possible insider trading in the $23 billion takeover of H. J. Heinz have a frozen account linked to suspicious trades, according to a court filing on Friday.
In the filing made in Federal District Curt in Manhattan, the Securities and Exchange Commission took action against a Zurich-based trading account that reaped $1.7 million in gains. The emergency action, the S.E.C. said on Friday, will prevent the suspects from collecting their profits or moving the money overseas.
The identity of the Heinz traders is not yet clear. An S.E.C. statement referred only to “unknown traders.†The gency said its investigation is continuing.
“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 M. Hawke, head of the S.E.C.’s market abuse unit, said in a statement.
As the agency took action on Friday, it could cast a cloud over the Heinz deal. Authorities will no doubt turn their focus toward the limited universe of insiders who tipped traders to the takeover.
The S.E.C. opened the insider trading inquiry on Thursday as Berkshire Hathaway and the investment firm 3G Capital agreed to pay $72.50 a share for Heinz. The inquiry is centered on a suspicious spike in options trading that came as rumors of the deal circulated Wall Street.
The trading patte! rn stood out. For months leading up to the deal, there was scant activity in Heinz options. But on Wednesday, options trading jumped to a possible record, according to data from Bloomberg.
Using what is known as a call option, the traders placed a bullish bet on Heinz , without actually committing to buy the company’s shares. Instead, investors have the opportunity to buy at a given price and future date.
The S.E.C. was alarmed by both the volume of trading and the origin of the bets. The traders who purchased the options, the S.E.C. said, had no history trading Heinz over the last six months.
“The timing, size and profitability of the defendants’ trades, as well as the lack of prior history of significant trading in Heinz†in the account, the commission said in the court filing, “makes these trades highly suspicious.â€
The S.E.C.’s inquiry mirrors an action it took last year in another deal involving 3G Capital, a company with Brazilian roots. In September, the agency btained an emergency court order to freeze the assets of a Brazilian man suspected of insider trading ahead of 3G Capital’s takeover of Burger King. The trader, who worked at Wells Fargo, reportedly received the tip from a 3G investor.
Neither the company nor any individual at 3G has been accused of any wrongdoing in that case or in the Heinz inquiry.
