NEW YORK - U.S. regulators filed insider trading charges on Friday against unknown individuals accused of making suspiciously well-timed purchases of call options in two companies before they announced multibillion-dollar mergers.
The case was brought in U.S. District Court in New York against "one or more unknown purchasers" of call option contracts to buy shares of defense company DRS Technologies Inc and American Power Conversion Corp, a power and cooling services company.
DRS is in a pending deal to be acquired by Italy's Finmeccanica SpA, for $3.94 billion, while American Power was bought by French engineering group Schneider Electric SA for $6.1 billion last year.
Through an account at UBS AG in Zurich, the purchasers made "well-timed purchases" of call options of DRS and American Power that yielded profits of about $3.3 million, the U.S. Securities and Exchange Commission said.
The SEC brings cases against unknown defendants when, for example, the commission staff gets indications of unusual trading in an account at a broker-dealer firm but does not have the name of the account holder. The commission then often tries to freeze the account so that the holder cannot get to the profits.
The lawsuit, which seeks civil penalties and disgorgement of trading profits, says the purchases were made in the days and weeks prior to public announcements about the acquisitions. The activity occurred twice in a period of less than two years, the SEC contends.
In the first instance, the SEC said, Schneider Electric contacted American Power on September 13, 2006 about its interest in acquiring the company and American Power positively responded a week later.
From September 21 to October 20, 2006, the SEC said, the unknown purchasers bought 2,830 American Power call options that were well out of the money. After Schneider publicly announced a buyout offer on October 30, American Power stock jumped 26 percent and the unknown purchaser liquidated the call option holdings for a profit of about $1.7 million, regulators said.
In the other instance, the SEC said, the unknown purchaser bought out-of-the-money DRS call options beginning on April 29, 2008 through May 7, 2008.
The next day, it was publicly reported for the first time that Finmeccanica was in advanced talks to buy DRS, and the unknown purchaser liquidated the entire holding for a profit of about $1.6 million, the SEC contends. Finmeccanica announced May 12 it would acquire DRS.
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