Securities and Exchange Commission have frozen the assets of a trader in Bangkok, Thailand who tried to withdraw more than $ 3 million made from illegal trading ahead of the acquisition of U.S. pork producer Smithfield foods.
10th June 2013
Securities and Exchange Commission have frozen the assets of a trader in Bangkok, Thailand who tried to withdraw more than $ 3 million made from illegal trading ahead of the acquisition of U.S. pork producer Smithfield foods.
The Securities and Exchange Commission (SEC) have announced that they have frozen the assets of a trader in Bangkok, who tried to withdraw more than $ 3 million made in profits by trading ahead of the acquisition of U.S. pork producer Smith Field Foods for nearly $ 5 billion. The regulator has obtained an emergency federal court order freezing his assets on Wednesday. The 30 year old plastic firm employee had had reaped a 3,400 percent return on investment (ROI) in 8 days by buying thousands of Smithfield call options, single stock futures, and Smithfield stock. Badin Rungruangnavarat is accused of being in possession of material, non-public information, leading him to buy thousands of out-of-the-money calls and single stock futures contracts in Smithfield from May 21 to 28th.
Call options give the buyer the right to buy a company’s stock at a certain price for a fixed period of time. They are bought when the trader expects the stock’s prices to rise. The transactions took place just days before the May 29th public announcement that Smithfield would be acquired by Shuanghui International Holdings in a $ 4.7 billion deal. Under the agreement Shuanghui agreed to pay $ 34 a share, a 31 % percent premium on the previous day closing of $ 25.97 price. Following the announcement of Smithfield by a Chinese firm, Smithfield shares opened nearly 25 % higher than the previous day’s closing price. According to a complaint filed in the federal court in Illinois, Rungruangnavarat opened a trading account with Interactive brokers on May 16th and used it solely for purchases of Smithfield calls, futures and common stock. The complaint alleges that he “essentially cornered the market in Smithfield call, options and future contracts,” He made a profit of $ 3,247, 813.
Merri Jo Gillete, director of the SEC’s Chicago office said “As alleged in our complaint not only did the defendant trade out of the money Smithfield call options, he further pumped up his profits by purchasing single stock futures, there by reaping a total unrealized return on his investment of 3,400 % in the span of eight days.”
Now, the million dollar question is how did he get the information about the acquisition deal ? SEC Investigators believe he was tipped off about the acquisition from a friend who is a former employee of the firm where Rungruangnavarat is employed. The friend is an associate director at a Thai investment bank which is overseeing acquisition formalities for acquiring Smithfield.
SEC, obtained the emergency court order on 6th June, on an ex parte basis. The Thai trader tried to withdraw more than $ 3 million from his Interactive Broker’s Account on June 3rd, after reaping abnormal profits. The order freezes the proceeds of Rungruangnavarat’s securities purchases, grants expedited discovery, and prohibits him from destroying evidence. The SEC is closely monitoring out-of-the-money calls ahead of large deals. Assets of a Swiss bank were frozen, earlier this year, after regulators spotted a windfall in the aftermath of Warren Buffet and 3G’s acquisition of HJ Heinz for $ 23.2 billion. The defendants were allegedly in possession of material, non public information when they purchased thousands of out-of-the-money calls. The case of Rungruangnavarat, strengthens the fact that regulators are getting more sophisticated, even looking on social media, for their investigations.
Rungruangnavarat, will be charged with disgorgement, a financial penalty. Disgorgement is a repayment of ill gotten money that is imposed on criminals by the courts. Funds received through illegal or unethical business transactions are disgorged or paid back, with interest to those affected by the action. It is a remedial civil action rather than a punitive civil action.