Two brothers agreed to pay $5 million to resolve U.S. Securities and Exchange Commission claims that they used confidential information to make options trades ahead of an announced deal to buy H.J. Heinz Co.
Michel Terpins, 36, and his brother Rodrigo Terpins, 40, turned a profit of more than $1.8 million from trades placed the day before Warren Buffett’s Berkshire Hathaway Inc. and 3G Capital Inc. said they would pay $23 billion to acquire the Pittsburgh-based ketchup maker, the SEC said in a statement today. Heinz shares jumped 20 percent after the announcement.
The SEC filed a lawsuit related to the “suspicious trading” by unknown persons on Feb. 15, the day after the announcement. In an amended complaint, filed today at U.S. District Court in Manhattan, the agency didn’t specify how the brothers, both residents and citizens of Brazil, allegedly obtained the confidential information. The agency won an asset freeze when the traders failed to appear in court on Feb. 22.
“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,” Sanjay Wadhwa, senior associate director for enforcement in the SEC’s New York office, said in the statement.
Dwight Bostwick, an attorney for Michel Terpins at Zuckerman Spaeder LLP, declined to comment. A phone call to Stephen Kaufman, a lawyer for Rodrigo Terpins, wasn’t immediately returned.
Rodrigo Terpins placed the order to purchase nearly $90,000 in option positions in Heinz the day before the merger announcement while he was vacationing at Walt Disney World in Orland, Florida, the SEC said. The trades were based on material non-public information that he received from his brother, according to the complaint.
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, the SEC said. The options were effectively a wager that Heinz’s stock would increase in value by about $5 per share.
When Rodrigo Terpins placed the trades on Feb. 13, a broker at Goldman Sachs Group Inc.’s Zurich-based subsidiary cautioned him that the brokerage rated Heinz as a “sell,” the SEC said. Terpins nevertheless instructed the broker to place the trade, according to the complaint.
The timing, size and profitability of the trades as well as a lack of prior history of Heinz trading in the Alpine Swift account made the transactions “highly suspicious” and led the SEC to file the emergency action, the SEC said.
The SEC settlement, which is subject to court approval, calls for the brothers to disgorge more than $1.8 million in illegal profits and pay $3 million in penalties.
A consortium led by Berkshire Hathaway completed the Heinz acquisition on June 7.