U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20224 / August 3, 2007
SEC v. One or More Unknown Purchasers of Call Options for the Common Stock of Petco Animal Supplies, Inc. and Taher Suterwalla, Case No. 06-CV1446 DMS (LSP) (S.D. Cal.)
SEC Charges British Trader With Making Over $3 Million in Illicit Profits Through Insider Trading Involving Call Options and Derivative "Spread Bets"
The Securities and Exchange Commission today announced that it filed an amended complaint in federal court in San Diego on August 1, 2007, charging Taher Suterwalla, 30, of London, England, with insider trading in the securities of Petco. The amended complaint alleges that in the three weeks preceding Petco's acquisition announcement, Suterwalla purchased Petco call options from a Swiss financial institution, which filled Suterwalla's orders by purchasing Petco call options in the United States. The options generally were out of the money, representing a bet that the price of Petco stock would rise substantially, and were set to expire within weeks of the purchase date, representing a bet that the price rise would happen soon. The amended complaint further alleges that Suterwalla purchased from brokerage houses in the United Kingdom certain derivative instruments known as spread bets, which caused the brokers to purchase Petco common stock and options in the United States.
The amended complaint alleges that Suterwalla entered into the transactions while aware of material nonpublic information regarding the pending acquisition of Petco, and that he took highly leveraged and speculative positions in the price of Petco's securities, which exposed him to the potential for millions of dollars in losses if Petco's price declined. The amended complaint further alleges that Suterwalla made all of his purchases within 17 days of Petco's acquisition announcement, that he made a number of his purchases the day before the announcement, and that his illicit profit from these transactions was more than $3 million.
On July 18, 2006, the United States District Court for the Southern District of California entered a temporary restraining order freezing assets of certain then-unknown purchasers of call options for the common stock of Petco and prohibiting the unknown purchasers from obtaining the options or the proceeds from the sale of the options. In addition to freezing approximately $862,000 in assets, the court issued orders that provide for expedited discovery and prohibit the defendants from destroying evidence. On August 4, 2006, the court entered a preliminary injunction that extended the temporary restraining order and asset freeze. In amending the complaint, the Commission identified Suterwalla as a defendant who had been described as "one or more unknown purchasers" of Petco securities in the initial complaint.
The Commission alleges that Suterwalla engaged in insider trading in violation of the antifraud provisions of the Securities Exchange Act of 1934. The Commission is seeking a permanent injunction, disgorgement of ill-gotten gains with prejudgment interest thereon, and the imposition of civil penalties.
For more information, see Litigation Release No. 19778 (July 27, 2006).
The Commission acknowledges the Chicago Board Options Exchange, the United Kingdom Financial Services Authority, the Swiss Federal Banking Commission, and the Ontario Securities Commission for their continuing assistance in this matter.
