U.S. News

SEC To Probe Trading Before TXU Buyout: Report


The Securities and Exchange Commission will investigate a suspicious surge in trading activity on TXU prior to news that the Texas utility would be acquired by Kohlberg, Kravis, Roberts and Texas Pacific in a $32 billion deal, according to a report in The Times of London.

The SEC is reportedly investigating the heavy buying of call options in TXU shares in the hours before the news, which was first reported by CNBC on Friday. TXU announced on Monday it agreed to be acquired by the private equity group for $69.25 a share.

Spikes in activity can be attributed to myriad events, reported CNBC's Melissa Lee. TXU, for instance, released earnings today. But it's still hard to ignore big jumps in activity.

"By the end of the day, it was a feeding frenzy," Jon Najarian, co-founder of Web site optionmonster.com in Chicago, told CNBC.

An SEC spokesperson said the agency does not comment on whether an investigation is in progress.

Still, this sort of activity isn't unusual ahead of a big deal, says CNBC's Lee. For instance, call option trading was heavy the day before XM Satellite and Siriusannounced their planned merger on Feb. 19. XM had volume of more than 22,000 call options, while the monthly average was just one-fifth of that, according to Schaeffers Investment Research.