MANHATTAN (CN) - The SEC sued "Certain Unknown Traders in the Securities of H.J. Heinz Co.," who made "unrealized profits" of more than $1.7 million by trading ahead of the Feb. 14 takeover offer of $28 billion, by Berkshire Hathaway et al.
Warren Buffet's company and 3G Capital Partners announced their $72.50 per share offer for Heinz on Feb. 14 - it would be the biggest food company buyout in history.
Heinz's stock price rose by 19.9 percent that day, from $60.48 to the offering price of $72.50 - on a 1,700 percent increase in daily trading volume.
In its inside-trading complaint in Federal court, the SEC says there was "highly suspicious trading in call options contracts" of Heinz stock, just before the Valentine's Day announcement that Heinz had agreed to be acquired by the consortium led by Berkshire Hathaway and 3G Capital.
"The defendants in this action are either foreign traders or traders trading through foreign accounts whose timely purchases of Heinz calls generated unrealized profits of over $1.7 million," the 10-page complaint states. "On information and belief, the defendants are either located or trading through accounts located in Zurich, Switzerland.
"On information and belief, the defendants purchased Heinz calls while in the possession of material nonpublic information concerning the proposed acquisition of Heinz. The defendants' trading in Heinz calls is highly suspicious. Specifically, on Feb. 13, the day prior to the announcement, defendants purchased 2,533 out-of-the money June $65 calls for a total of nearly $90,000. Between Sept. 1, 2012 and Feb. 13, 2013, the account through which the defendants traded had no prior history of trading in Heinz. The Feb. 13 trading represented a drastic increase in the volume of June $65 calls traded. For example, on Feb. 12, only 14 June $65 calls were purchased while on Feb. 11 no one purchased and June $65 calls. The announcement caused the price of the June $65 calls to surge over 1,700 percent, making the defendants' initial investment of nearly $90,000 worth over $1.8 million."
The trading was done through an omnibus account in the name of GS Bank IC Buy Open List Options GS & Co c/o Zurich, according to the complaint.
Neither Heinz, Berkshire Hathaway nor 3G Capital are defendants, though all are listed as "relevant entities."
The SEC seeks disgorgement, with interest, and penalties.
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