Another international deal appears to have an insider trading problem.
The Securities and Exchange Commission on Thursday froze the assets of a trader based in Bangkok, as it investigates a purported insider trading scheme tied to Smithfield Foods’ $4.7 billion sale to a Chinese meat processor.
In a complaint filed in federal district court in Chicago, the S.E.C. contended that illicit trades by Badin Rungruangnavarat, a 30-year-old employee of a plastics company in Thailand, made before the deal was announced last week made $3.2 million in unrealized gains.
The complaint calculates his investment return at over 3,400 percent.
It is the second instance of significant suspicious trading ahead of a cross-border merger this year. Investigators continue to examine a series of big purchases of call options tied to H. J. Heinz ahead of the ketchup maker’s $23 billion takeover by Berkshire Hathaway and the Brazilian-backed investment firm 3G Capital.
According to the S.E.C. complaint filed on Thursday, Mr. Rungruangnavarat first sought to open a trading account at Interactive Brokers on May 10, succeeding six days later. Between May 21 and May 28, the day before the Smithfield deal was announced, the trader bought 3,000 call options tied to the American pork processor’s stock, which were exercisable at prices between $29 and $30 a share.
At the time, Smithfield’s shares were trading below $26.50 apiece, rendering the options out of the money. But the purchases comprised the vast majority of trading volume in Smithfield options for that week and for all of May, essentially cornering the market in those securities.
He also bought 2,580 single-stock futures contracts and 100 common shares of Smithfield. All told, Mr. Rungruangnavarat paid about $95,450.84, though he also posted over $1.3 million in margin.
On May 29, Smithfield announced its deal with Shuanghui International of China, which agreed to pay shareholders $34 apiece. Smithfield shares quickly leaped on the news, rising to $33.35 by day’s end.
Behind the S.E.C.’s actions is the agency’s belief that Mr. Rungruangnavarat was tipped off to a potential sale of Smithfield. The regulator noted in its complaint that one of the defendant’s Facebook friends is an employee of a Thai investment bank that was advising Charoen Pokphand Foods, a large food conglomerate that had held discussions with Smithfield.
Though Mr. Rungruangnavarat is based abroad, the proceeds of his trading are based in an American brokerage account. According to the S.E.C., he sought on June 3 to transfer over $3 million from that account, prompting the agency’s move.
“As alleged in our complaint, not only did the defendant trade out of the money Smithfield call options, he further pumped up his profits by purchasing single-stock futures, thereby reaping a total unrealized return on his investment of 3,400 percent in the span of eight days,†Merri Jo Gillette, the director of the S.E.C.’s Chicago office, said in a statement.
The agency is seeking the disgorgement of the trading gains, as well as financial penalties.
