Account linked to Heinz trades is frozen

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Posted: Saturday, February 23, 2013 12:00 am

A federal judge froze a Swiss account that the U.S. Securities and Exchange Commission says was used to carry out suspicious trades in H.J. Heinz Co. shares shortly before the takeover of the ketchup maker was announced.

After the traders failed to appear at a hearing Friday in Manhattan, U.S. District Judge Jed Rakoff agreed to freeze the Goldman Sachs Group Inc. account until the case is resolved. The SEC on Feb. 15 sued the “unknown” traders over suspicious purchases of Heinz options through the account.

“They can hide, but their assets can't run,” Rakoff said after signing the freeze order.

The trades at issue came a day before Warren Buffett's Berkshire Hathaway Inc. and 3G Capital Inc. announced the $23 billion takeover of Pittsburgh-based Heinz, the agency said in its complaint. Using a Zurich-based account that involved call-option contracts, the unidentified traders' unrealized profit was more than $1.7 million, according to the SEC.

Goldman Sachs doesn't have “direct access” to information about the beneficial owner behind transactions in the account, the bank told the regulator. The New York-based bank told the agency the account holder is a Zurich private-wealth client, the SEC said in a court filing.

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“We are cooperating with all regulators involved,” Andrea Raphael, a Goldman Sachs spokeswoman, said.

The SEC has asked Swiss authorities for assistance in the effort to identify the traders. Swiss Financial Market Supervisory Authority, known as Finma, will cooperate with the SEC's request “within the framework of our mandate,” Christina Buergi, a spokeswoman for Finma, said in a phone interview. Buergi said the request had been made “recently” and declined to comment further.

The SEC wants the assets frozen until the case is resolved because there is a “serious risk that the substantial proceeds from the defendants' trading will leave the jurisdiction of the U.S. courts in the next few days and may never be recovered,” according to a court filing.

Rakoff gave any traders who objected to a permanent asset freeze until Friday to explain why he shouldn't grant the SEC's request.

“It appears that the defendants known as 'Certain Unknown Traders in the Securities of H.J. Heinz Co.' have chosen to remain unknown at least in terms of any appearance today in court,” the judge said. “So there appears to be no opposition to the proposed order that would freeze on a more permanent basis pending further proceedings of the amount in question and also prohibits the destruction of records.”

The FBI in New York said this week that it's also investigating the matter and is working with the SEC.

The defendants, using the Goldman Sachs account, invested almost $90,000 in option positions the day before the deal was announced, the SEC said. As a result, their position increased to more than $1.8 million, a rise of almost 2,000 percent.

The SEC said that the traders had advance material nonpublic information about the impending deal when they used the omnibus account to buy the options. The purchase of the options, which expire on June 22, was highly unusual, the SEC said.

Trading in the options gives the right to buy the underlying shares and profit when the stock rises. The timing and size of the trades were deemed highly suspicious by the SEC because the accounts through which the traders purchased the options had no history of trading Heinz securities in the last six months.

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

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