SEC investigation to continue into 'suspicious' acquisition of Heinz stock option
High-risk bets placed ahead of the announcement that H.J. Heinz Co. would be acquired for $28 billion will expire on Saturday.
But that doesn't mean the trader is off the hook from authorities who began an insider-trading investigation.
A Securities and Exchange Commission's investigation will continue, said Peter Henning, a professor of law at Wayne State University in Detroit and a former fraud investigator for the SEC and Justice Department.
The trader ultimately lost the chance to cash in when the Heinz deal closed on June 7, making it a private company and ending trading of the stock.
“You don't have to profit to have violated the insider trading laws,” Henning said.
“The violation took place when there was trading on the basis of inside information,” he said. “They're going to keep bringing it.”
On Feb. 13, the day before Warren Buffett's Berkshire Hathaway and Brazilian investment firm 3G Capital announced they were taking over the Pittsburgh ketchup maker, an unknown trader purchased 2,593 option contracts to buy Heinz stock. Each option gave him or her the right to buy 100 shares at $65 a piece.
Heinz shares were trading around $60 that day. But the next day, when the deal was announced and Heinz stock jumped 20 percent, the trader could have pocketed $1.7 million — the difference between the purchase price and the increased value of the stock.
SEC has called the trading activity, which was executed using a Goldman Sachs account in Zurich, highly suspicious.
A federal judge froze the options in February, and no one has stepped forward to claim them. The decision effectively prevented the trader from cashing in on his or her trade. Officials with the SEC and FBI, which also is investigating, did not respond to requests for comment.
Because of Swiss banking secrecy laws, U.S. authorities have been waiting for Finma, the Swiss equivalent of the SEC, to turn over the identities of the owners of the Goldman Sachs account. Finma said in February that it was cooperating with the SEC, but it has since declined to comment on the probe.
Goldman Sachs officials in New York have said they are cooperating with the investigation but they don't know the identities, also because of Swiss laws.
Henning said the SEC has the challenge of not only persuading the Swiss to turn over information, which could take months, but also the difficulty of establishing a connection between the traders and someone with advance knowledge of the deal.
“It may be that they never find it,” he said. But, he said, “They're going to keep looking.”
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or firstname.lastname@example.org.