Following the $24 billion takeover announcement of Heinz (HNZ) last week, the Securities and Exchange Commission announced that it was looking into some suspicious trading activity in the days prior to the deal's announcement.
What the SEC found so suspicious was a spike in options trading just before the announcment. During their investigation, regulators identified a Swiss trading account that made a $900,000 investment in call options, which netted a profit in excess of $1.7 million after the news was announced and the stock traded higher.
The SEC has frozen the assets in the account and is looking into who controls it.
There are several reasons why the trades raised red flags with regulators. First, the options would have been worthless if the stock had stayed at or below $65 a share, where it had been trading since last November. Secondly, the account in question had no history of trading Heinz options in the last six months.
The questionable trades involved 2,533 contracts of the June $65 calls.
So what lead this particular account to all of a sudden decide to make a $900,000 investment in Heinz options? It seems pretty obvious that someone leaked the details of the takeover… but whom? The account is reportedly named “GS Bank IC Buy Open List Options GS & Co. c/o Zurich Office”, which sounds like it could belong to Goldman Sachs, but no one seems to knoe for sure.
Regulators will most likely focus on individuals inside one of the companies taking Heinz private, 3G Capital as this is not the first time there has been insider-trading allegations associated with a 3G takeover.
In September 2012 the SEC froze a Brazilian trading account, which it believes was involved in illegal trading prior to 3G's takeover of Burger King (BKW) back in 2010.
Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va. His articles typically cover big-picture events and forecasting what impact they will have on the stock market. In addition to writing for Fresh Brewed Media, Michael also wrote for AOL's BloggingStocks for three years, focusing most of his attention on the energy and technology sectors. Follow him on Twitter at @MFatMICenter.