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SEC Investigators Review Surge in Heinz Trades Before Merger

U.S. Securities and Exchange Commission investigators are reviewing whether a surge in bullish bets on H.J. Heinz Co. was fueled by inside information about Berkshire Hathaway Inc. and 3G Capital’s plan to buy the ketchup maker, a person familiar with the matter said.

Trading in Heinz call options, which give the right to buy the underlying shares and profit when the stock rises, increased yesterday to the highest level since Jan. 31, data compiled by Bloomberg show. Heinz shares jumped 20 percent to $72.51 today following the announcement that Warren Buffett’s Berkshire Hathaway and Jorge Paulo Lemann’s 3G Capital agreed to buy the Pittsburgh-based company for about $23 billion.

The agency’s review is in its early stages and a formal investigation may not result, according to the person, who asked not to be named because the matter isn’t public.

The SEC in recent years has sharpened its methods for linking people who make well-timed trades to those who might have access to confidential information about an impending merger or deal. Investigators have increasingly examined the buying and selling patterns of traders, looking for similar activity by other investors.

One recent SEC case involved another deal connected to 3G Capital. In November, a Brazilian ex-banker and his firm agreed to pay $5.1 million to settle SEC claims that he made illegal trades ahead of 3G’s 2010 acquisition of Burger King Holdings Inc. According to the SEC, Igor Cornelsen learned about the impending merger from a Wells Fargo & Co. broker, whose client had invested with 3G and knew about the acquisition.

Matter Settled

In settling the matter, Cornelsen didn’t admit or deny wrongdoing.

Berkshire Hathaway and 3G will pay $72.50 a share, compared with yesterday’s closing price of $60.48, according to a statement today. Options that changed hands yesterday during the surge in volume earned buyers a total profit of about $1.8 million today, according to data compiled by Bloomberg. Almost 2,600 June $65 calls traded yesterday at a price of about $91,900, the data show. The contracts rose to $7.20 from 40 cents yesterday.

To contact the reporter on this story: Joshua Gallu in Washington at jgallu@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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