In an emergency court order, the Securities and Exchange Commission (SEC) announced that they will be freezing all assets in relation to an alleged insider trading case. This case involved the oil-and-gas conglomerate Chevron Corporation and their intentions to acquire Anadarko Petroleum Corporation, which was reported to yield roughly $2.5 million in profits.
Chevron is a multinational energy corporation based in the United States. They announced that they intended to invest in outstanding shares of Anadarko, which is also based in the U.S. and sells petroleum. While the buying of shares warrants no action on its own, Chevron intended to acquire them for $65 per share in cash and stock. This type of investment would represent a 38 percent premium over Anadarko’s closing price pre-announcement.
The SEC complaint filed in the U.S. District Court for the Southern District of New York identified a series of transitions that could be considered suspicious. Days before the announcement, unknown traders allegedly used foreign brokerage accounts in the United Kingdom and Cyprus to purchase out-of-the-money call options through U.S. based brokerage firms and on U.S. based exchanges. After the announcement, Anadarko shares rose in price significantly. Brokerage account customers benefited greatly by either utilizing their right to gain large positions of Anadarko stock at a discount or selling many of the option contracts for profit.
The SEC made the choice to freeze the proceeds that are related to foreign accounts’ trading involved in these allegations. Assets or proceeds in accounts resulting from the suspicious trading will be frozen, and require the traders to repatriate any funds or assets located outside the U.S. that were obtained from the alleged insider trading.
In addition to the freeze order, the SEC complaint targets the unknown traders with charges of violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. The SEC is ordering the traders to expel their allegedly ill-gotten gains as well as civil penalties and interest.
The investigation is still ongoing and being conducted by Jeffrey Cohen and supervised by Scott Mascianica, while Keefe Bernstein and supervisor B. David Fraser lead the SEC litigation. There has also been assistance from the Financial Industry Regulatory Authority.
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