The Case of the Disappearing FBI probe into Heinz Option Trades

Zürich_-_Münsterhof_-_Halbparonama_2

Panoramics of Münsterhof square in Zürich, September 2008, ‘Roland zh’. The address of Goldman Sachs Bank AG [Zürich] is Münsterhof 4. [From Wikimedia Commons, “the free media repository”]

Two deals involving Berkshire Hathaway partner, 3G Capital, were scrutinized by the SEC for alleged insider trading. 

3G no stranger to US courts…

The takeover of H.J. Heinz & Co  by Berkshire Hathaway was done and dusted in May.

By definition that means all loose ends surrounding the takeover [including legal challenges] were cleared up.

Well, that would be true as far as it goes, but there is still one obvious issue outstanding, even though the takeover has been completed.

The freeze on a Swiss bank account linked to possible insider trading in H.J. Heinz Co. call options, just before Heinz agreed to be bought by Berkshire Hathaway Inc. and Brazilian investment firm 3G Capital, was never lifted.

Additionally, although the corporate side of the takeover played out in the northern hemisphere, and the wheeling and dealing in options reportedly took place in the US and Switzerland, further reports indicated the SEC was also investigating related CFD trading, with a focus on one of the largest markets for that type of bet, The City of London.

Another twist, it makes sense to suppose the options contracts have long expired, and are now worthless.

More to the point, and perhaps somewhat bizarrely from the point of view of us non-legal folks, the SEC’s lawsuit against ‘unknown traders’ suspected of insider trading in Heinz stock options, remains open.

[In July I e-mailed the SEC to check if it had made any further ‘statement directly related to this case, either formally or informally?’ after the FBI announced it was weighing in with its own investigation. I’m still waiting for a reply from the SEC as I publish this blog post.]

The FBI does not comment on current, ongoing cases.

So, this post is my attempt to keep as many of the strands of the mystery as possible in one place for safekeeping, until such time as the investigations are concluded and this becomes a court case story….or not.

Let’s start with some reductive basics.

Switzerland. Yes, there are a few connections.

But there is absolutely no suggestion whatsoever of wrongdoing by the Swiss-Brazilian co-founder and board member of 3G,  Jorge Paulo Lemann. He lived in Switzerland for several years from the 1990s, onward. Nowadays he ‘shuttles between ‘São Paulo, Lake Zurich and St. Louis.’

And for that matter, nor is there any suggestion whatsoever of wrongdoing by 3G Capital Inc. itself.

However, 3G Capital has had its share of direct tangles with US prosecutors.

There again, 3G Capital was indirectly ensared in another case of possible insider trading last year when the SEC froze the assets of another former Brazilian banker in September 2012.

In November 2012, that ex-banker, Igor Cornelsen, agreed, without admitting or denying culpability, to pay $5.1 million to settle SEC charges that he and his firm, Bainbridge Groupmade more than $1.68 million by trading Burger King options, using confidential information, ahead of the 2010 announcement that the company was being bought by 3G Capital.

According to the SEC, Igor Cornelsen sought information from his Wells Fargo broker, who regulators alleged was stealing information from another customer involved in the Burger King deal.

Cornelsen was alleged to have sought inside information from his broker Waldyr Da Silva Prado Neto by sending him emails with such masked references as: “‘Is the sandwich deal going to happen?'”, according to the SEC’s statement on the case and settlement versus Cornelsen.

As for Waldyr Da Silva Prado Neto, the last reference I can find on http://www.sec.gov/ to the commission’s investigation specific of him, was posted on September 21 2012 .

In that post, the SEC said the probe was continuing.

Both WSJ.com and FT.com reported in February 2013 that the SEC continued to investigate Waldyr Da Silva Prado Neto.

It’s worth repeating that there’s no suggestion whatsoever that such ticks against Cornelsen and Waldyr Neto involve any current executive or official of 3G Capital.

We’ll know more, I guess, when the FBI has completed it’s own investigation into the Heinz derivatives trading and has concluded whether or not wrong-doing took place, and also, by whom [maybe].

Guessing when that might be seems like a bet as complex, murky and vaguely crazy as a stock option trade, with a CFD on the side.

ThSM

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