Judge Upholds S.E.C. Freeze on Account Tied to Suspicious Heinz Trades

Judge Upholds S.E.C. Freeze on Account Tied to Suspicious Heinz Trades

WASHINGTON — A federal judge has upheld the Securities and Exchange Commission‘s recent action against a Swiss account linked to possible insider trading in the $ 23 billion takeover of H.J. Heinz, the agency announced on Friday.

The court ruling, by Judge Jed S. Rakoff in Manhattan, comes a week after the S.E.C. first froze the Swiss account at Goldman Sachs. In the action last week, the S.E.C. said it had detected a “highly suspicious” spike in options trades tied to Heinz. An unknown investor placed the trades, the S.E.C. said, just a day before Berkshire Hathaway and the investment firm 3G Capital agreed to buy the ketchup maker.

By throwing his support behind the S.E.C. at a hearing on Friday, Judge Rakoff enabled the agency to continue its investigation.

But the hearing did nothing to illuminate the identity of the investor, identified only as “one or more unknown traders,” a mystery confounding regulators and complicating the case. No one appeared in court on Friday to represent or defend the traders.

An S.E.C. investigator leading the case, Sanjay Wadhwa, disclosed the developments on Friday at a conference in Washington. He noted at the event, titled “S.E.C. Speaks,” that the initial freeze last week was likely the “swiftest enforcement action” the agency ever filed. It came just over a day after Heinz announced the deal.

The action could cast a cloud over the deal, as investigators ramp up their case and explore which insiders may have leaked confidential information. In another sign of escalation, the Federal Bureau of Investigation indicated this week that it was examining potential criminal wrongdoing in the case.

Authorities are focused on more than 2,500 options trades placed the day before the Heinz takeover. That move struck authorities as “drastic,” the S.E.C. said, since there was scant options activity for months leading up to the deal.

The traders spent about $ 90,000 on the options, a position that skyrocketed on paper to $ 1.8 million after the deal was announced and Heinz shares soared.

Despite the suspicious evidence, it could take authorities some time to unmask the traders. The investors, private wealth management customers of Goldman Sachs, funneled the trades through an account in Zurich, obscuring the view of American investigators.

The bank, which is not suspected of wrongdoing, said it was cooperating with the investigation.

But Goldman is limited it what it can reveal about its Swiss customers.

Goldman’s American lawyers recently informed the S.E.C. that they were unaware of the traders’ identities. Swiss privacy laws prevent the bank’s Zurich branch from sharing such details, people briefed on the matter said.

Expecting such complications, the S.E.C. reached out to the Swiss financial regulator last week to seek its help.

The Swiss regulator, Finma, confirmed on Friday that it had received the letter. A spokeswoman said the Swiss regulator would review the request and try to get the information to the S.E.C.

Unless the traders come forward, the S.E.C. will now rely on Finma to extract the identities from Goldman’s Swiss arm. As of Friday, the S.E.C. continued to lack access to the account information, the people briefed on the matter said

But Mr. Wadhwa warned that the S.E.C. would continue to investigate and suggested that it could file similar emergency cases in future deals.

“You will see more of these actions coming out of the S.E.C.,” he said at the conference.

Mark Scott contributed reporting from London.


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