SEC opens insider trading inquiry surrounding Berkshire Hathaway's takeover of Heinz, according to source
February 15, 2013
(New York Times)
– Regulators are scrutinizing unusual trading surrounding the planned $23 billion takeover of the food company H. J. Heinz, raising questions about potential illegal activity in one of the biggest deals in recent memory, a person briefed on the matter said.
The Securities and Exchange Commission opened the insider trading inquiry on Thursday as Berkshire Hathaway and the investment firm 3G Capital agreed to pay $72.50 a share for Heinz, this person said. Regulators first noticed a suspicious spike in trading on Wednesday.
If the S.E.C.’s preliminary inquiry turns into a broader investigation, it could cast a shadow over the deal. As part of the process, authorities would turn their focus toward the limited universe of insiders who could have tipped off traders about the deal.
The agency’s inquiry is expected to be centered on options trading in Heinz, activity that soared this week as news of the deal circulated Wall Street. In what is known as a call option, investors can place a bullish bet on a stock, without actually committing to buy the shares. Instead, investors have the opportunity to buy at a given price and future date.
As recently as Tuesday, there was scant activity in Heinz options. But by Wednesday, as the companies were putting the finishing touches on the deal, options trading jumped, data from Bloomberg shows.
The price of Heinz’s stock soared after the deal was announced. The stock finished up nearly 20 percent on Thursday to close at $72.50, matching the offer price.
The S.E.C. is focusing on the sudden leap in options trading Wednesday, building on a related case it filed last year that also involved 3G, a company with Brazilian roots. In September, the agency obtained an emergency court order to freeze the assets of a Brazilian man suspected of insider trading around 3G Capital’s takeover of Burger King. The trader, a Brazilian citizen who worked at Wells Fargo in Miami, reportedly received the tip from a 3G investor.
Neither the company nor any individual at 3G has been accused of any wrongdoing in that case or in the Heinz inquiry.
While the inquiry is in its early stages, the person briefed on the matter said that regulators could take relatively prompt action. If it is concerned that traders might move the money overseas, the S.E.C. could ask a federal court to freeze the traders’ assets.
The S.E.C. routinely opens inquiries into trading activity after major mergers are announced, but often does not bring charges. The agency, however, has renewed its focus on insider trading, mounting dozens of cases in recent years.
An S.E.C. spokesman declined to comment. Bloomberg News earlier reported that S.E.C. investigators were reviewing the surge in Heinz options trading.