The Securities and Exchange Commission investigators are scrutinizing some unusual trading activities which occurred before the official announcement of the $23 billion acquisition of H.J. Heinz Company (NYSE:HNZ) by Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) and 3G Capital Management. Regulators are trying to find out if a sudden increase in bullish bets was guided by inside information about the planned purchase of the Ketchup maker. Berkshire Hathaway Inc. and private equity firm, 3G Capital, announced, on Thursday, their plans to pay $72.50 per Heinz share. The regulators began the inquiry after noticing a suspicious increase in trading on Wednesday.
The inquiry is still in its preliminary stages. But if the SEC opens a broader investigation in the case, that may cast a shadow over the proposed acquisition. In recent years, the SEC has strategically sharpened its techniques to link traders who make well-timed trades with those having insider information about upcoming deals or mergers.
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The investigation is centered around options trading in H.J. Heinz Company (NYSE:HNZ), which touched new highs after the announcement of the deal. In options trading, investors are allowed to place bullish bets on a stock without any obligation to buy. But they do have the opportunity to buy at a given price on a future date. Data compiled by Bloomberg shows that on Tuesday, there was slow activity in Heinz options, but options trading surged on Wednesday. Share prices surged more than 20 percent within a day to cross the offer price at $72.55.
Last year, the SEC had filed another such case that also involved 3G Capital. According to the SEC, trader Igor Cornelsen learned about the impending acquisition of Burger King Holdings, Inc. (NYSE:BKC) from a Wells Fargo & Company (NYSE:WFC) broker in Miami. The broker had received the tip from a 3G Capital investors who already knew about the acquisition. In November 2011, Igor Cornelsen, a Brazilian ex-banker, agreed to pay $5.1 million to settle the SEC claims related to his illegal trade ahead of Burger King’s acquisition by 3G Capital.
The SEC is expected to speed up the process. If the authorities see a possibility of traders moving the money overseas, the SEC may urge a federal court to freeze the assets of the recognized traders.