“Money Never Sleeps” is the subtitle to the last Wall Street film staring Michael Douglas as the legendary stock trader Gordon Gekko. That title might also be applied to the SEC’s insider trading watch dogs. While most were preparing for the Fourth of July holiday on Wednesday, they obtained a temporary freeze order over about $4.6 million in what may be insider trading profits. The SEC’s complaint and request for a freeze order was filed just two days after a dramatic spike in the share price of Onyx Pharmaceutical, Inc. following an announcement of a rejected take-over bid. SEC v. One or More Unknown Traders in the Securities of Onyx Pharmaceuticals, Inc. (S.D.N.Y. Filed July 3, 2013).
The action centers on the proposed acquisition of Onyx Pharmaceutical by Amgen, Inc. On Sunday, June 30, Onyx, a San Francisco, California based biopharmaceutical company, announced that it had received but rejected a bid to purchase the outstanding shares of the company from Amgen, a California based biotechnology company. The bid was for $120 per share.
The transaction began on June 13, 2013 when Amgen’s CEO met with his counterpart from Onyx. At the meeting Amgen’s CEO made an unsolicited oral offer to acquire Onyx. The offer was followed by a written proposal the next day. The written proposal was sent to the Onyx board of directors that same day.
On June 26, 2013, Onyx’s board met and decided to reject the offer. Two days later on Friday, June 28, 2013, that decision was conveyed to Amgen. The same day an article appeared in the Financial Post, a Canadian publication, regarding the offer. Amgen, however, did not issue an announcement about the proposal until Sunday, June 30, 2013. In that announcement the company stated that an unsolicited offer for $120 per share had been received and rejected as inadequate. The announcement also stated that the company had authorized its financial adviser to contact potential acquirers.
Unknown purchasers began buying call options in Onyx on June 26, the day the Onyx board met to consider the offer. On that day 175 calls were purchased. The next day an additional 544 contracts were purchased. On Friday, June 28, the last trading day before the Sunday announcement, and the same day as the Canadian news article, an additional 320 calls were purchased. On each day the option acquisitions represented significant departures from the historical purchasing patterns for the securities in terms of the numbers of contracts purchased. The acquisitions were made through two omnibus accounts, one at Citigroup Global Markets, Inc. and the other at Barclays Capital, Inc. No other information about the accounts is furnished in the complaint.
On Monday, July 1, 2013, the first trading day after the announcement of the rejected deal, Onyx shares closed at $131.33, an increase of $44.51 or about 51% over the prior day’s closing price. The options in the two accounts, purchased for about $305,000 were worth about $4.6 million, an increase of almost 14,200% in three trading days. Those profits are now frozen under the court’s order. The case is in litigation.