The surge in H.J. Heinz Co. options before Berkshire Hathaway Inc. (BRK/A)'s $23 billion takeover bid shows that even the world's most successful investor isn't immune to leaks.
Federal authorities began a criminal probe after almost 2,600 Heinz June $65 call optionschanged hands on Feb. 13, compared with 14 the day before, according to data compiled by Bloomberg. It was the second instance in two years of well-timed trading before billionaireWarren Buffett's company announced an acquisition. In March 2011, call volume in Lubrizol Corp. climbed to 12 times more than puts days before Berkshire offered to buy the world's largest producer of lubricant additives.
While Buffett is under no suspicion, the government suit shows it's getting harder to keep secrets in mergers and acquisitions, according to Robert Pavlik, chief market strategist at Banyan Partners LLC, which oversees $1.4 billion. Regulators have probed at least a dozen cases of options trading before events such as takeover announcements since 2007, includingAstraZeneca Plc (AZN)'s purchase of MedImmune Inc. andBHP Billiton Ltd. (BHP)'s bid for Potash Corp. of Saskatchewan Inc., data compiled by Bloomberg show.
"People are looking for whatever edge they can get, which includes trying to game the system," Pavlik said in a Feb. 22 phone interview from New York. "With these kinds of big deals there are a lot of participants, and anyone with access to information has friends and family who may engage in nefarious activity simply based on an off-the-cuff remark."
David Fuller's view We have seen this before, of course, and far too often but that does not make it any less pathetic. It tarnishes the reputation of the financial industry and is a strike against capitalism, which is the only financial system that really works.
The USA, as the leading exponent of global capitalism, has a responsibility to investigate this case thoroughly, mainly via the Securities Exchange Commission (SEC), and all other instances where financial abuses are evident. It also has a responsibility to prosecute proven offenders. This does not happen often enough, as we know only too well.
Mr Buffett is obviously beyond suspicion, as the article also states.