By Patricia Hurtado - Feb 20, 2013 6:05 PM GMT+1300
The Federal Bureau of Investigation is working with the Securities and Exchange Commission in a criminal probe of trading “anomalies” prior to the announcement of a deal to buy H.J. Heinz Co., said Peter Donald, a spokesman for the FBI’s New York office.
The SEC sued “unknown” traders over “suspicious trading” of Heinz shares through what the regulator said was an account at Goldman Sachs Group Inc. The trades came one day beforeWarren Buffett’sBerkshire Hathaway Inc. and 3G Capital Inc. announced their $23 billion takeover, the SEC said.
The H.J. Heinz Co. production facility in Pittsburgh, Pennsylvania. Photographer: Kevin Lorenzi/Bloomberg
The SEC alleged in a complaint filed Feb. 15 in Manhattan federal court that the traders earned $1.7 million by purchasing the ketchup maker’s stock just before the announcement. The trading in the deal, which Heinz and 3G said is the largest ever in the food industry, was carried out through a Zurich, Switzerland-based account and involved call-option contracts, the SEC said.
“The FBI is aware of trading anomalies the day before the Heinz announcement,” Donald said. “The FBI is consulting with the SEC to determine if a crime was committed.”
The SEC said it obtained an emergency court order to freeze assets in the Zurich-based account. The account used by the defendants was identified in the SEC complaint as “Switzerland GS Bank IC Buy Open List Options GS & CO c/o Zurich Office.”
Tiffany Galvin, a spokeswoman for Goldman Sachs Group Inc., has said the bank is “cooperating with the SEC’s investigation.”
The SEC alleged the defendants invested almost $90,000 in option positions the day before the deal was announced. As a result, their position increased to more than $1.8 million, a rise of almost 2,000 percent in one day.
The SEC said that the traders had material nonpublic information about the impending deal when they used an omnibus account in Zurich to buy 2,533 out-of-the-money June call options, which had a strike price of $65 on Feb. 13. Shares closed that day at $60.48.
Trading in the options gives the right to buy the underlying shares and profit when the stock rises. The timing and size of the trades were deemed highly suspicious by the SEC because the accounts through which the traders purchased the options had no history of trading Heinz securities in the last six months.
Heinz shares jumped 20 percent to $72.50 following the announcement that Berkshire Hathaway and Jorge Paulo Lemann’s 3G Capital agreed to buy the Pittsburgh-based company. As a result of the takeover announcement, the price of the June call options jumped to a close of $7.33 on Feb. 14 from 40 cents the day before, an increase of more than 1,700 percent.
The case is U.S. Securities and Exchange Commission v. Certain Unknown Traders in Securities of H.J. Heinz Co., 13- cv-1080, U.S. District Court, Southern District of New York (Manhattan).