SEC Sees Inside Trading|in Smithfield Merger

CHICAGO (CN) - A stock trader in Bangkok made $3 million trading on inside information he may have received from a Facebook friend about a Chinese company's $4.7 billion acquisition of Smithfield Foods, the SEC claims in court.

The SEC sued 30-year-old Badin Rungruangnavarat in Federal Court.

Shanghui International announced its $4.7 billion bid for Smithfield on May 29. It was another big, and unexpected, move into the U.S. market from China, which is the world's largest consumer of pork. After Shanghui offered $34 a share, 31 percent more than the previous day's closing price, Smithfield's share price jumped by 25 percent at the opening of markets the next day.

Rungruangnavarat bought so much Smithfield call options and futures he "essentially cornered the market in those securities," the SEC said in its complaint.

Rungruangnavarat heard of the acquisition at least eight days before it was announced and "among his possible sources is a Facebook friend who is an associate director at an investment bank to a different company that was exploring an acquisition of Smithfield," the SEC said in a statement.

In its complaint, the SEC said: "This is an insider trading case involving highly profitable and highly suspicious trading in the securities of Smithfield Foods, Inc. ('Smithfield'). The Defendant purchased thousands of Smithfield 'out-of-the-money' call options and single-stock futures, as well as Smithfield stock, shortly before the public announcement that Shuanghui International Holdings Ltd. ('Shuanghui') had agreed to acquire Smithfield. The Defendant's well-timed trades yielded unrealized gains of more than $3.2 million. He reaped a return on investment of more than 3,400 percent in a span of eight days.

"On May 29, 2013, Smithfield publicly announced that Shuanghui, a Chinese company, had agreed to acquire Smithfield for $4.7 billion, which would represent the largest ever acquisition of a U.S. company by a Chinese buyer. In the days leading up to the acquisition announcement, Defendant purchased such a large amount of Smithfield call options and single stock futures contracts that he essentially cornered the market in those securities. Following the announcement, Smithfield stock opened at $32.39, an increase of $6.42 (or 24.7 percent) from its previous day's close."

The SEC seeks disgorgement, penalties and an injunction.

In its statement, the SEC patted itself on the back for moving so quickly against Rungruangnavarat. It was remarkably fast work from the SEC, which generally takes years to prosecute even minor inside traders.

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