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February 18, 2013

US: SEC launches action over trading in Heinz options

The US Securities and Exchange Commission has launched legal action against unknown traders over claims they broke rules when trading in Heinz options before the US$28bn deal to buy the food giant was announced.

By Dean Best

The US Securities and Exchange Commission has launched legal action against unknown traders over claims they broke rules when trading in Heinz options before the US$28bn deal to buy the food giant was announced.

The SEC claims traders had information about the transaction ahead of the announcement when they bought call options on Heinz’s shares on Wednesday (13 February), 24 hours before the ketchup firm revealed the takeover bid.

A Swiss account through which the SEC claims Heinz options were traded has been frozen. The SEC said the account reaped over $1.7m from trading in the options before Heinz’s deal with Warren Buffett’s Berkshire Hathaway and private-equity firm 3G Capital was announced on Thursday.

The regulator said the timing and the size of the trades was “highly suspicious”. It said the account through which the options were purchased had not traded in in Heinz securities in the last six months. Trading in Heinz call options in the days before the deal was announced had been “minimal”, it said on Friday.

“Irregular and highly suspicious options trading immediately in front of a merger or acquisition announcement is a serious red flag that traders may be improperly acting on confidential non-public information,” Daniel Hawke, chief of the SEC’s market abuse unit within the regulator’s division of enforcement, said.

The SEC wants the court to order the traders to pay back their “ill-gotten gains with interest” and pay financial penalties.

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