The SEC Sues Unidentified Traders Over Suspicious Activity Before The Heinz Deal

HeinzThis just in from Bloomberg: the SEC is suing some unidentified traders over suspicious trading activities before the Heinz deal Warren Buffett did this week (check out the complaint here).

Yesterday, Warren Buffett teamed up with the richest man in Brazil, Jorge P. Lemann, to buy Heinz for $23 billion.

Thing is, regulators noticed some strange trading activity in the stock right before the trade was announced, that may indicate that inside information on the deal was leaked out.

Here's what what happened. On Wednesday, there was a surge in call options for Heinz. That means a ton of investors (in this case, 4x as many as there usually are) suddenly decided to buy the option to buy shares of Heinz at a given price on a future date.

That means that if the stock surged (like it did when the Buffett-Lemann deal was announced), an investor with a call option could exercise their option to buy the stock at a lower, pre-surge price.

From The NYT:

As recently as Tuesday, there was scant activity in Heinz options. But by Wednesday, as the companies were putting the finishing touches on the deal, options trading jumped, data from Bloomberg shows.

The activity came from a Goldman Sachs account, and the calls were set at $65. A nice prize given that the stock price jumped to over $72.

Now it seems the SEC believes it may have found the source of those trades.

We'll let you know more when we get it.