The Federal Bureau of Investigation (FBI) has joined the Securities and Exchange Commission (SEC) to investigate potential insider trading that took place a day before the official announcement that Warren Buffett-led Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) and private equity firm 3G Capital Management had agreed to purchase H.J. Heinz Company (NYSE:HNZ) for $23 billion.
The SEC went on to freeze assets in a bank account linked to the highly suspicious trading. FBI spokesman Martin Feely said that the Bureau is aware of the case, and is working with SEC to determine if a crime was committed. Heinz options are very lightly traded, but on last Wednesday, a trader placed an unusually large bet expecting that the shares of Ketchup maker will surge heavily by mid-June. And within just 24 hours, that trade made an estimated $1.7 million in profits.
On Friday, the SEC filed a lawsuit against the unknown traders who used an account from a GS Bank in Zurich to trade after gaining insider knowledge of Buffett’s acquisition. GS Bank is a unit of Goldman Sachs Group, Inc. (NYSE:GS). The SEC said that the volume and timing of the trades were extremely suspicious because that account had no history of trading H.J. Heinz Co. options in the past six months.
Director of the SEC’s New York office, Sanjay Wadhwa said that the traders who used that account will have to appear in court to explain the trade before their assets are unfrozen. The trade involved 2533 call options. Each option allowed the investor to buy 100 H.J. Heinz shares at $65 each by mid-June.
Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) and 3G Capital announced to pay $72.50 per H.J. Heinz Company (NYSE:HNZ) share, valuing the Ketchup maker at $23 billion. The deal is worth $28 billion including debt assumption. According to options data firm TradeAlert, Heinz options have averaged 1,304 contracts traded daily over the past month. But Wednesday’s trade pushed the volume to about three times the daily average.
It’s the second time in a year that the SEC has investigated an alleged insider trading in a transaction involving 3G Capital. Last year, a stock broker had received a tip from a 3G Capital investor who already knew about 3G Capital’s impending purchase of Burger King Holdings, Inc. (NYSE:BKC).