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SEC: 2 people know insider Heinz tipster

| Saturday, Feb. 1, 2014, 12:03 a.m.

Two people know who tipped off a pair of Brazilian brothers that H.J. Heinz Co. was going to be sold in a $28 billion deal.

That detail from the government's yearlong insider trading investigation involving the Heinz sale was revealed in a trove of documents filed in federal court in New York on Thursday by the Securities and Exchange Commission.

The documents shed new light on the complexities of the ongoing probe, which started Feb. 15, the day after Heinz announced it would be acquired by Warren Buffett's Berkshire Hathaway and 3G Capital, an investment firm run by Brazilian billionaires.

In October, the SEC announced a settlement with Michel and Rodrigo Terpins, the Brazilian brothers they say traded on inside knowledge that Heinz would be sold and its stock price would jump 20 percent in one day.

But the SEC previously has said nothing about where the Terpins got their information.

Investigators have plenty of potential suspects to examine, court documents show. There were 122 people working for 21 companies who had knowledge that Buffett and 3G partners were in talks with Heinz on a buyout between December 2012 and February 2013, the documents disclosed.

In addition to Buffett, 3G partners and top Heinz executives, those who knew about the deal include investment bankers in New York, a director of Anheuser-Busch InBev, top executives at Burger King Worldwide and lawyers in Washington, Los Angeles and Pittsburgh.

In 2010, 3G took Burger King private, and Heinz CEO Bernardo Hees, a 3G partner, was the fast-food chain's CEO until June. The founders of 3G, Brazilian billionaires Jorge Paulo Lemann, Marcel Herrmann Telles and Carlos Alberto Sicupira, sit on Anheuser-Busch's board.

“Commission counsel has communicated with counsel for two witnesses — one located in the United States and one located in Brazil — who indicated that their clients are able to provide information concerning how the defendants obtained the nonpublic information,” the SEC told the court.

SEC officials declined to comment.

The documents also show the expanse of the SEC's probe that led to the Terpins. Investigators traced ownership of bank and trading accounts in Switzerland and the Cayman Islands, and issued subpoenas for cellphone records, immigration documents and bills from Walt Disney World.

Michel and Rodrigo Terpins, who are members of one of Brazil's wealthiest families, traveled separately to the United States from Brazil in February, the SEC said. Michel received the tip about Heinz and called Rodrigo, who was vacationing at Walt Disney World in Orlando.

Rodrigo emailed his family's Goldman Sachs broker in Switzerland and then placed the order by phone for Heinz options, which are a risky bet that a stock will rise. The trades were executed through a Cayman Islands holding company owned by the Terpins family. They paid $90,000 for the options on Feb. 13. The next day, after Heinz announced the deal, the options were worth $1.8 million.

The Terpins brothers agreed to the $4.8 million settlement with the SEC, which includes each paying a $1.5 million fine and disgorging their profit from Heinz trades. But U.S. District Court Judge Jed Rakoff in New York is opposing part of the settlement that lets the brothers get away without admitting guilt.

The SEC filed the documents, which included 18 exhibits, to argue that Rakoff should approve the settlement because “the sanctions embodied in the proposed settlements reasonably reflect the scope of relief the commission would likely obtain under the applicable law if the commission was successful in litigation.”

Peter Henning, a professor of law at Wayne State University in Detroit and a former fraud investigator for the SEC and Justice Department, said the SEC's lawyers are likely fighting Rakoff on the settlement because they “don't want to give up the no-admission no-denial means of resolving a case,” and they “don't want to have judges dictating when they get admissions.”

They also may be trying to protect the settlement with the Terpins, who would want to avoid admitting guilt because it could be used against them if the Justice Department decides to pursue criminal charges, Henning said.

“They don't want to risk the exposure to a criminal case,” he said.

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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