In February 2013, the SEC announced that it had obtained an emergency court order to freeze assets in a Zurich, Switzerland-based trading account that allegedly was used to reap more than $1.7 million from trading in advance of the February 14th public announcement about the acquisition of the H.J. Heinz Company by Berkshire Hathaway. The case is noteworthy because of the speed of the SEC’s action and the fact that there is only the suspicion of insider trading.

According to the SEC complaint, “certain unknown traders engaged in highly suspicious and highly profitable trading in Heinz calls through an omnibus account located in Zurich, Switzerland.” The traders purchased 2,533 out-of-the-money June $65 call options, each of which would enable the holder to purchase 100 shares of Heinz stock for $65 per share before the calls expired on June 22, 2013. The SEC complaint termed this trade “highly suspicious” for several reasons, including:

  • at the time preceding the June $65 call option purchase, Heinz stock had typically traded around $60 per share;
  • the general historical lack of trading in the June $65 calls;
  • the fact that the trading account had no prior trading history in Heinz stock or options; and
  • the timing of the investment of nearly $90,000 in risky call options the day prior to the Heinz acquisition announcement.

When the unidentified traders didn’t show up at scheduled hearing, the judge granted the SEC’s request to freeze the account until the case is resolved. “They can hide, but their assets can’t run,” the judge announced in granting the SEC’s freeze order.

Guess that leaves the “suspicious traders” in a pickle!