Washington: The US Securities and Exchange Commission (SEC) has asked a court to freeze assets in a Switzerland-based trading account that was used to reap over 1.7 million dollars from trading in advance of public announcement about the acquisition of H.J. Heinz Company.
The SEC’s immediate action ensures that potentially illegal profits cannot be siphoned out of this account while the agency’s investigation of the suspicious trading continues.
In a complaint filed in federal court in Manhattan, the SEC alleged that prior to any public awareness that Berkshire Hathaway and 3G Capital had agreed to acquire H.J. Heinz Company in a deal valued at 28 billion dollars, unknown traders took risky bets that Heinz’s stock price would increase.
A notice on the SEC website said that the traders purchased call options the very day before the public announcement.
After the announcement, Heinz’s stock rose nearly 20 percent and trading volume increased more than 1,700 percent from the prior day, placing these traders in a position to profit substantially.
Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office said that ‘they moved swiftly to locate and freeze the assets of suspicious traders, who now have to make an appearance in court to explain their trading if they want their assets unfrozen.’
The SEC alleged that the unknown traders were in possession of material nonpublic information about the impending acquisition when they purchased out-of-the-money Heinz call options the day before the announcement.