When it comes to alleged insider trading in Heinz options ahead of last week's going-private announcement, the Securities and Exchange Commission needs more to go on than what was revealed in its bare-bones complaint freezing assets in a Zurich-based trading account. Otherwise, this may end up looking like a bad case of the securities regulator overreaching based on very thin evidence.
The SEC says a trader purchased 2,500 out-of-the-money call options on shares of Heinz for $95,000 on Feb. 13. The options give the purchasers the right to acquire 250,000 shares at $65 each until June. The stock was trading at just over $60 a share at the time. The out-of-the-money call options weren't very popular. On Feb. 12, only 14 $65 June call options were traded. On the day before, none at all.
When Berkshire Hathaway and 3G Capital Management announced a buyout, the stock rose to about $72. The price of the June 65 call options, now very much in the money, surged 1,700 percent. The $90,000 investment had been turned into $1.8 million.
The SEC describes this trading as "highly suspicious." The agency points out that the trading account used to acquire the options had not purchased Heinz securities for the past six months. It does seem like someone knew something before the deal was announced.