In one of the fastest enforcement actions ever filed for suspicious trading, the U.S. Securities and Exchange Commission has frozen a Swiss trading account that turned a $90,000 options play into $1.7 million profit just before Heinz’s recent $23 billion buyout by billionaire Warren Buffett and Brazilian equity firm 3G Capital.
“If we didn’t act [to freeze assets] and ended up proving a case of insider trading but the money had gone, it would be a pyrrhic victory,” said chief of the SEC market abuse enforcement unit Daniel Hawke.
Heinz stock price skyrocketed $12.02 upon news of the Buffet-Brazil buyout. The SEC says the timing of the call options are “highly suspicious” and that the account in question had no history of ever trading Heinz over the last six months. While the SEC does not yet know how many traders were involved, nor their names, officials say the suspicious transactions took place through a Goldman Sachs bank unit in Zurich. Goldman is not accused of anything and is said to be cooperating with SEC investigators.
Call options are an investment move that allows an trader to bet on a stock before buying it with an option to purchase shares later for a fixed amount.
The Heinz deal may have also produced a windfall for Secretary of State John Kerry whose wife, Teresa Heinz Kerry, had as much as $3 million in Heinz stock as of 2010. The ketchup heiress was previously married to the late Sen. John Heinz III and is worth a reported $1.2 billion. Kerry has already stated that he will need to recuse himself in matters dealing with Heinz because “the investment of the trusts in H.J. Heinz Company stock is greater than their investment in other publicly traded stocks.”
The Heinz $23 billion acquisition by Buffett’s Berkshire Hathaway and 3G Capital is one of the food industry’s largest buyouts in history.
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