U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

Washington, D.C.

LITIGATION Release No. 16862 / January 18, 2001

Securities and Exchange Commission v. One or More Unknown Traders of Options on Common Stock of Ralston Purina Co., 01 Civ. 0339 (JSM) (S.D.N.Y.)


SEC Obtains Emergency Order Freezing Over $300,000 In Potential Profits From Trading Through Swiss Banks Before Tuesday's Acquisition Announcement

The Securities and Exchange Commission today announced that the U.S. District Court for the Southern District of New York entered a temporary restraining order Wednesday afternoon against unknown persons who traded through Swiss banks in Ralston Purina options before Tuesday's announcement that Nestlé S.A. would acquire Ralston Purina. The order temporarily prohibits the traders from obtaining or disposing of the proceeds from their trading.

The Commission's complaint alleges that highly profitable trades in Ralston Purina options were made anonymously through Swiss bank accounts beginning November 14, 2000, just five days after confidential merger discussions began between Ralston Purina and giant Swiss food company Nestlé S.A. Several of the options trades were placed in the last two trading days before Tuesday's announcement that Nestlé would acquire all of the outstanding shares of Ralston Purina for $33.50 per share in cash, a 36% premium over the closing price of Ralston Purina common stock the previous trading day. The defendants' purchases represented an overwhelming percentage of the total trading volume in certain Ralston Purina call options on the relevant days. Profits from the trades can potentially exceed $300,000.

The Commission's lawsuit charges the unknown traders with violating two antifraud provisions of the federal securities laws, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. As relief, the Commission seeks a permanent prohibitory injunction, the disgorgement of all illegal profits, and the imposition of civil monetary penalties.

The court's temporary restraining order prohibits the removal of the proceeds from the U.S. brokerage accounts through which the Swiss banks executed the trades, pending a January 26 hearing on the Commission's application for a preliminary injunction. In addition, the court's order imposes an expedited discovery schedule and prohibits the defendants from destroying documents.

The Commission's investigation into these matters is continuing.

The Commission gratefully acknowledges the assistance of the Chicago Board Options Exchange in this matter.