Brazilian Brothers, SEC Settle Heinz Trading Case -- Update
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By Kaitlyn Kiernan and Tess Stynes
Two brothers agreed to pay nearly $5 million to settle allegations that they were behind a big stock-options trade made the day before the blockbuster $23 billion buyout of H.J. Heinz Co. in February, according to a Securities and Exchange Commission release Thursday.
Rodrigo and Michel Terpins of Brazil neither admitted to nor denied the charges. Their attorneys didn't immediately respond to requests for comment.
The Wall Street Journal previously reported that regulators and criminal investigators scrutinized what they called " highly suspicious" trading in stock options in the ketchup maker ahead of the merger announcement. Those contracts, which looked for a sharp rise in Heinz shares to see gains, led to $1.8 million in profits.
The SEC quickly moved to freeze assets in an account linked to the trades. At the time, the identity of the trader was unknown. The SEC said Thursday the trading was done through an account with Alpine Swift Ltd., a Cayman Island-based company, which then routed the activity through an account at Goldman Sachs Group's (GS) Zurich office.
The SEC alleges Rodrigo Terpins placed the order to purchase the Heinz options while he was vacationing at Walt Disney World in Florida based on nonpublic information received from Michel Terpins.
"Rodrigo and Michel Terpins obtained confidential information prior to any public awareness that a Heinz deal was in the works, and they exploited it to the disadvantage of all other traders in the marketplace," said Sanjay Wadhwa, senior associate director for enforcement in the SEC'sNew York office.
The takeover of Heinz by Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB) and Brazilian private-equity firm 3G Capital was one of the largest acquisitions ever in the food industry.
According to the SEC, the Alpine Swift brokerage account was used to purchase 2,533 out-of-the-money June $65 calls. Each call options grant the right to buy 100 shares of stock at a set price. They profit from a rise in the stock above that strike price. At the time, Heinz shares were trading for less than $61. The following day, Berkshire and 3G announced a $72.50 a share bid for the condiment company.
The SEC alleged that prior to the Feb. 14 announcement of the Heinz acquisition, Michel Terpins learned that an investment consortium including 3G Capital was about to announce a major acquisition and that Heinz was the target. He is accused of providing the information to his brother Rodrigo who allegedly placed the trades Feb. 13. Rodrigo Terpins communicated with a broker who cautioned him that his firm rated Heinz a "sell," according to the SEC, but he instructed the broker to place the trade anyway.
The Terpins and Alpine Swift, which has been named as a relief defendant, have agreed to disgorge the $1.8 million in illegal profits and the Terpins brothers also will pay $3 million in penalties.
Write to Kaitlyn Kiernan at email@example.com and Tess Stynes at firstname.lastname@example.org
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