zerohedge.com / by Tyler Durden / Mar 1, 2017 12:03 PM
First, it was the leak of the massive Heinz-Unilever deal that may have scuttled the Warren Buffett-inspired transaction, now it appears that another recent megamerger was leaked 4 days ahead of the announcement. On Wednesday morning, the SEC froze brokerage accounts of several unnamed traders who made more than $3.6 million in profits by trading in the four days before the $3.3 billion takeover of Fortress Investment Group was announced by Japan’s SoftBank.
According to the FT, the traders placed “highly suspicious” orders for shares and contracts for difference, or CFDs, through Singapore-based Maybank Securities and a brokerage in London, R.J. O’Brien. Breaking the second cardinal rule of insider trading, i.e., never to buy stocks in bulk in the day ahead of the announcement (the first such rule is never to buy calls the before a deal is announced although the “insiders” did that too), all the trades through Maybank were made within a 24-hour period before the deal to buy the US-listed private equity firm was announced to the market; meanwhile trade through R.J. O’Brien took place between February 10 and 14, the day the deal was disclosed the SEC reported.
“The timing, size and profitability of these trades are highly suspicious,” the SEC said in a court filing asking for the freeze.
As the FT adds, the SEC is seeking a judgment to force the traders to disgorge the profits and pay a penalty. SoftBank’s offer for Fortress was a 30 per cent premium over the private equity firm’s closing share price that day. Also, as the SEC further notes, it appears that the rookie traders decided to really bring attention on themselves by also breaking Cardinal rule #1: a burst of option buying ahead of the deal. Just like in the case of the Unilever deal, which saw a surge in call option volume for both Unilever and Kraft Heinz ahead of the announcement…
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