U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22620 / February 19, 2013
Securities and Exchange Commission v. One or More Unknown Traders in the Securities of H.J. Heinz Company, Civil Action No. 13-CIV-1080
SEC FREEZES ASSETS IN SWISS-BASED ACCOUNT USED IN SUSPECTED INSIDER TRADING AHEAD OF HEINZ ACQUISITION
The Securities and Exchange Commission obtained an emergency court order on February 15, 2013 to freeze assets in a Zurich, Switzerland-based trading account that was used to reap more than $1.7 million from trading in advance of the February 14, 2013 public announcement about the acquisition of H.J. Heinz Company (“Heinz”).
The SEC’s immediate action ensures that potentially illegal profits cannot be siphoned out of this account while the agency’s investigation of the suspicious trading continues.
In a complaint filed in federal court in Manhattan, the SEC alleges that prior to any public awareness that Berkshire Hathaway and 3G Capital Partners. Ltd. had agreed to acquire Heinz in a deal valued at $28 billion, unknown traders took risky bets that Heinz’s stock price would increase. The traders purchased call options the very day before the public announcement. After the announcement, Heinz’s stock rose nearly 20 percent and trading volume increased more than 1,700 percent from the prior day, placing these traders in a position to profit substantially.
The SEC alleges that the unknown traders were in possession of material nonpublic information about the impending acquisition when they purchased out-of-the-money Heinz call options the day before the announcement. The timing and size of the trades were highly suspicious because the account through which the traders purchased the options had no history of trading Heinz securities in the last six months. Overall trading activity in Heinz call options several days before the announcement had been minimal.
The emergency court order obtained by the SEC freezes the traders’ assets and prohibits them from destroying any evidence. The SEC’s complaint charges the unknown traders with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the emergency relief, the SEC is seeking a final judgment ordering the traders to disgorge their ill-gotten gains with interest, pay financial penalties, and be permanently enjoined from future violations.
The SEC’s expedited investigation is being conducted by Market Abuse Unit members Megan Bergstrom, David S. Brown, and Diana Tani in the Los Angeles Regional Office with substantial assistance from Charles Riely, Market Abuse Unit member in the New York Regional Office who will handle the SEC’s litigation. The SEC appreciates the assistance of the Options Regulatory Surveillance Authority (ORSA).