No company is immune to the
risk of insider trading. As Heinz recently found when the day before an
acquisition of the company by Warren Buffet’s Berkshire Hathaway and 3G Capital
its stock was abnormally traded on the market causing the SEC to question if
there was any foul play involved.
As shown in the graph fromthe Wall Street Journal on February 13th, the day before the deal
was announced, there was a large volume of trades among the ‘call’ option contracts.
Without prior knowledge of a deal the stock price activity should have been
relatively quiet until after the announcement. The stock had been steady for
months, which made the volume of trading suspicious. This news of a merger also
reflected in the stock prices raising over ten dollars in one day.
The merger between Heinz and
3G Capital is the second to draw the attention of the SEC. Not all
investigations of insider trading actually lead to lawsuits, but shouldn't the
SEC take special care in looking into these claims since it is the second
suspicion?
The larger question in the
lawsuit is how will the SEC prove either side of the merger leaked information
to day-traders? The people who sold the stock made over 1.8 million dollars,
which is an obvious motive. As shown in a You Tube post, the SEC has no solid proof at the moment. Although, it did freeze a
Switzerland- based account that was connected to the merger that was under
Goldman Sach’s name.
According to Corgentum, the SEC and the FBI are involved in the investigation, but it is hard to track
the identity of the trader. The problem isn’t whether insider trading was done,
but who did the actual act. The SEC can track the volume of stock trading
before and after a merger, but they can’t always tell who the leak originated
from. It seems to be a flaw in the SEC’s system of heavy acts about fair
disclosure.
According to CNBC the perfect way to avoid being caught by insider trading, is to not sell shares
at all. Yet, if people don’t sell the shares they won’t make the money that
insider trader is hoping to make. The key to insider trading they insist is to
not get caught, but any insider trader can do that as long as they keep a
paperless trail and are ambiguous.
In an investor relations
class we went over the importance of knowing who the investors are in a
company, but it is also important to know the key players in a company and
their connections to the investors as to minimize the risk of insider trading.
No company is immune to the possibility of insider trading when big mergers
come along, but to keep the flow of information fair investor relations professionals
need to err on the side of caution when it comes to fair disclosure.
Investor relations
professionals should know the people they work with, as they are the boundary
spanners both internally and externally. It is managing the relationships with
investors and the employees to ensure that the right people know the
information at the right time. Since 3G Capital had just run into the same
issue when they acquired Burger King, there should have been more preventive measures taken for the Heinz acquisition.
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