Washington D.C., Oct. 10, 2013 —

The Securities and Exchange Commission today announced that two brothers in Brazil have agreed to pay nearly $5 million to settle charges that they were behind suspicious trading in call options for H.J. Heinz Company the day before the company publicly announced its acquisition.

The SEC filed an emergency enforcement action earlier this year to freeze assets in a Swiss-based trading account used to reap more than $1.8 million from trading in advance of the Heinz announcement.  The SEC’s immediate move the day after the announcement ensured the illicit profits could not be released out of the account while the investigation into the then-unknown traders continued.

In an amended complaint filed today in federal court in Manhattan, the SEC alleges that the order to purchase the Heinz options was placed by Rodrigo Terpins while he was vacationing at Walt Disney World in Orlando, and the trading was based on material non-public information that he received from his brother Michel Terpins.  The trades were made through an account belonging to a Cayman Islands-based entity named Alpine Swift that holds assets for one of their family members.  Rodrigo Terpins purchased nearly $90,000 in option positions in Heinz the day before the announcement, and those positions increased dramatically by nearly 2,000 percent the next day.

The Terpins brothers and Alpine Swift, which has been named as a relief defendant for the purposes of recovering ill-gotten gains, have agreed to disgorge the entire $1,809,857 in illegal profits made from trading Heinz options.  The Terpins brothers also will pay $3 million in penalties.  The settlement is subject to court approval.

“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’s New York Regional Office.  “Those who use foreign accounts to commit insider trading in the U.S. markets should know that their activities can still be tracked and they will be held accountable by the SEC for their actions.”

According to the SEC’s amended complaint, Alpine Swift’s brokerage account was used to purchase 2,533 out-of-the-money June $65 calls.  This was effectively a wager that Heinz’s stock would increase in value by approximately $5 per share.  The trade was then executed through an omnibus account at Goldman Sachs’ Zurich office.  An omnibus account has the aggregate positions and transactions of a firm and its underlying customers without disclosing the identities of the beneficial owners or customers.

The SEC alleges that prior to the February 14 announcement that Berkshire Hathaway and 3G Capital agreed to acquire Heinz in a deal valued at $28 billion, Michel Terpins learned that an investment consortium including 3G Capital was about to announce a major acquisition.  He found out that Heinz was the target.  Michel Terpins then provided the non-public information to Rodrigo Terpins, who placed the trades on February 13.  Rodrigo Terpins communicated with a broker who cautioned him that his firm rated Heinz a “sell.”  But Rodrigo Terpins instructed the broker to place the trade anyway.  The timing, size, and profitability of the trades as well as the lack of a prior history of Heinz trading in the Alpine Swift account made the transactions highly suspicious in the wake of the Heinz announcement, hence the SEC’s emergency action at the time.

In addition to the monetary sanctions, the proposed final judgments to which Rodrigo and Michel Terpins consented without admitting or denying the allegations permanently enjoin them from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

The SEC’s investigation, which is continuing, has been conducted by Megan Bergstrom, David S. Brown, and Diana Tani in the Los Angeles office with assistance from Charles D. Riely in the New York office.  They are members of the SEC Enforcement Division’s Market Abuse Unit.  The case has been supervised by Daniel M. Hawke, chief of the unit, and Sanjay Wadhwa.  The SEC appreciates the assistance of the Swiss Financial Market Supervisory Authority.

SOURCE HERE