Facebook Tip Leads to $3 Million Trade Profit--and SEC Investigation
NEW YORK (MainStreet) A tip from a Facebook friend apparently enabled a wily stock trader to generate a tidy $3 million profit in eight days. It also led to a $5 million settlement with the Securities and Exchange Commission for insider trading.
The SEC says Badin Rungruangnavarat, a Bangkok-based trader with a U.S. brokerage account, traded on inside information in advance of a public announcement about the proposed acquisition of Smithfield Foods by a firm in China.
Badin apparently cornered the market and loaded up on thousands of out-of-the-money Smithfield call options and single-stock futures contracts in the week leading up to the May 29th public announcement about the proposed sale of Smithfield Foods to Shuanghui International Holdings. The trades netted a profit of over $3 million.
"As alleged in our complaint, not only did the defendant trade out of the money Smithfield call options, he further pumped up his profits by purchasing single-stock futures, thereby reaping a total unrealized return on his investment of 3,400% in the span of eight days," said Merri Jo Gillette, Director of the SEC's Chicago Regional Office.
The SEC investigation revealed that among his possible sources of material, non-public information about the impending deal was a Facebook friend who was an associate director at the investment bank for a different company that was also bidding on the Smithfield acquisition.
Badin's U.S. brokerage account was frozen in an SEC emergency action in June.
"Our quick action in June to stop Badin's insider trading profits from leaving the U.S. made this multi-million dollar settlement possible," says Daniel M. Hawke, Chief of the SEC Enforcement Division's Market Abuse Unit. "Once he was denied access to his trading account, Badin elected to forfeit all of his ill-gotten proceeds plus pay a $2 million penalty to settle the case against him."
Badin has agreed to pay $5.2 million to settle the charges: $3.2 million in disgorgement and the $2 million penalty, without admitting or denying the SEC's allegations.
--Written by Hal M. Bundrick for MainStreet