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SEC names Brazilian brothers in Heinz insider-trading case; they'll pay $5M to settle

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Thursday, Oct. 10, 2013, 11:18 a.m.
 

Two brothers from one of Brazil's richest families agreed to pay nearly $5 million to settle allegations by U.S. securities regulators that they masterminded an insider trading scheme related to the $28 billion buyout of H.J. Heinz Co.

Rodrigo Terpins, 40, and Michel Terpins, 36, used a tip from an unnamed source to turn $90,000 in illegal investments tied to the direction of Heinz stock into a $1.8 million profit, the Securities and Exchange Commission alleged in a complaint filed on Thursday in New York federal court.

The settlement is a significant coup for the agency in a high-profile case that was clouded by connections to Switzerland and the Cayman Islands — countries used as havens for individuals and corporations that want secrecy in their financial and investment dealings. It underscores the successes the agency has had in solving several major insider trading cases.

“Those who use foreign accounts to commit insider trading in the U.S. markets should know that their activities can still be tracked and they will be held accountable by the SEC for their actions,” said Sanjay Wadhwa, the SEC's senior associate director for enforcement in New York.

The brothers, whose Sao Paulo family controls a chain of department stores in Brazil, agreed to turn over the ill-gotten profit and pay $3 million in penalties. They did not admit wrongdoing.

Their U.S. lawyers could not be reached for comment.

The settlement, which must still be approved by the court, closes one chapter of the SEC's 8-month-old investigation by unmasking the investors behind the suspicious transaction.

But investigators are likely still searching for the original source of the information, said Peter Henning, a professor of law at Wayne State University in Detroit and a former fraud investigator for the SEC and the Justice Department.

“This shows what the SEC can do. They can track you down,” Henning said, noting that eight months is a short time to discover who made the trades, especially since they went through Switzerland and the Cayman Islands.

It's not known whether the Terpins disclosed who tipped them about the Heinz deal, the largest acquisition in the global food industry, and whether that person would face legal action. SEC spokeswoman Christina D'Amico declined to comment on what the regulator knows about the tipster.

According to the SEC, Michel Terpins learned prior to Feb. 13 from an unnamed source that 3G Capital, an investment firm owned by Brazilian billionaires, and other investors were negotiating an acquisition deal with Heinz. Warren Buffett's Berkshire Hathaway partnered with 3G to buy Heinz in a deal announced on Feb. 14.

Michel Terpins passed the tip to Rodrigo Terpins, who was on vacation at Walt Disney World in Orlando, Fla., the SEC said. Using a cellphone, Rodrigo Terpins called his broker and placed an order for 2,533 options on Heinz stock. Each option gave the Terpins the right to buy 100 shares of Heinz at $65 each. The day before the Heinz acquisition was announced, the company's shares were trading around $60.

The broker “cautioned him that his firm rated Heinz a sell,” the SEC said. “But Rodrigo Terpins instructed the broker to place the trade anyway.” A sell rating means that the brokerage firm did not think the stock would rise.

The trade was placed by the broker using a Goldman Sachs trading account in Zurich owned by Alpine Swift Ltd., the Cayman Islands company controlled by a “close relative” of the Terpins brothers, the SEC said.

The options were essentially wagers that the company's shares would rise about $5 by June. On the day the acquisition was announced, Heinz shares soared 20 percent, or more than $10, to around $72. That increased the value of the options transaction by 2,000 percent, the SEC said. An attorney for Alpine Swift, Juan Morillo, has previously said in court documents that the Cayman Islands company was not responsible for the trade and did not authorize it. Morillo could not be reached for comment.

Denise Goldfarb Terpins, the mother of the brothers, is a longtime executive and board member for the closely held department store chain Marisa Lojas SA.

Members of the Terpins and Goldfarb families own about 70 percent of Marisa Lojas' shares. Michel and Rodrigo Terpins each own 6 percent of the company's shares, according to Marisa Lojas' website.

Denise Goldfarb Terpins was listed by Forbes magazine in 2012 as the 73rd-richest person in Brazil, with an estimated net worth of $519 million. Her husband, Jack Terpins, is president of the Latin American Jewish Congress, an affiliate of the World Jewish Congress, an international advocacy group.

This is not the first time that insider trading allegations have followed a 3G Capital deal and been linked to Brazilians, although the SEC has not accused 3G executives of wrongdoing.

The SEC alleged that Waldyr Da Silva Prado Neto, a Brazilian working as a stockbroker in Miami, profited in 2010 from advance knowledge that 3G would buy Burger King. The SEC said Prado Neto received his tip from an unnamed 3G Capital investor who shared information with the stockbroker but expected it to remain confidential.

The broker made $175,000 in trading on the fast-food chain's purchase and shared the information with others who made illegal trades, the SEC has said.

The SEC said it froze Prado Neto's bank accounts in 2012 when he fled to Brazil.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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