February 15, 2013
On Friday, the U.S. Securities and Exchange Commission sought and received an emergency court order freezing the assets of a Zurich-based trading account. The SEC suspects this account was used to conduct illegal insider trading in Heinz (NYSE: HNZ ) shares ahead of Berkshire Hathaway's (NYSE: BRK-A ) (NYSE: BRK-B ) Thursday buyout announcement.
According to an announcement on the SEC's website, on the day prior to the public announcement of the joint bid for Heinz by Berkshire and 3G Capital, "unknown traders" purchased call options on Heinz stock, sparking a 20% rise in the share price of Heinz, a 1,700% increase in trading volume and enough movement in the price of call options to give these traders a one-day $1.7 million profit.
As SEC Chief of the Division of Enforcement's Market Abuse Unit Daniel M. Hawke explained, both the "timing and size of the trades" appeared "irregular and highly suspicious," raising suspicions "that traders may be improperly acting on confidential nonpublic information."
To determine if foul play took place, the SEC obtained an emergency court order freezing the traders' assets and ordering them to refrain from destroying any evidence. In the event the agencies' concerns turn out to be justified, the SEC will demand that the traders "disgorge their ill-gotten gains with interest, pay financial penalties, and be permanently barred from future violations."