Heinz Insider Trading Highlights Need for Wall Street Transparency
NEW YORK (TheStreet) -- In Heinz's(HNZ) $28 billion acquisition by Warren Buffett's Berkshire Hathaway(BRK.A) and private equity firm 3G Capital, someone may have illegally made a $1.8 million profit using inside information, according to the Securities and Exchange Commission.
The SEC alleges a dormant trading account in Switzerland kicked into action buying up call options for Heinz just ahead of the ketchup maker's purchase by Berkshire and 3G Capital, in what it says is a violation of securities laws.
As it turns out, the SEC's allegation of insider trading and a court order to freeze the unnamed Zurich-based options account comes just as media reports indicate SAC Capital Management saw withdrawals of $1.7 billion, or a quarter of outside investor assets, as the hedge fund tries to battle allegations of insider trading levied against a handful of its former traders.
The separate news events, however, shouldn't be seen independently.
In fact, the SEC's quick ability to catch what it suspects is potentially illegal trading just over 24 hours after Heinz's proposed acquisition and a multi-year investigation to levy insider allegations against SAC Capital traders may prove the rationale for more transparency on Wall Street.
The SEC alleges that on Feb. 13, a day prior to Heinz's acquisition, the Swiss options account bought 2,533 out-of-the money June $65 calls for a total of nearly $90,000. "Between Sept. 1, 2012, and Feb. 13, 2013, the account through which the defendants traded had no prior history of trading in Heinz," the SEC states.
When Heinz's $72.50-a-share acquisition was announced, those trades stood to gain nearly $1.8 million, a 1,700% return from the prior day when the contracts were traded.
At the heart of the issue is whether fraud goes undetected by regulators like the SEC for the simple reason that trading occurs in hard-to-regulate over-the-counter markets, or so-called dark pools of opaque stock trading.