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S.E.C. Freezes Assets of Thai Trader in Smithfield Inquiry

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Another international deal appears to have an insider trading problem.

The Securities and Exchange Commission froze the assets of a trader based in Bangkok on Thursday, as it investigates a supposed insider trading scheme tied to the sale for $4.7 billion of Smithfield Foods to a Chinese meat processor.

In a complaint filed in Federal District Court in Chicago, the S.E.C. contended that illicit trades were made by Badin Rungruangnavarat, a 30-year-old employee of a plastics company in Thailand. He made the trades on May 21 to May 28, before the deal was announced on May 29, and made $3.2 million in paper gains.

The complaint calculates his investment return at more than 3,400 percent. Regulators noticed the trading before Mr. Badin could withdraw the money from his brokerage account.

It is the second instance of significant suspicious trading ahead of a cross-border merger this year. Investigators continue to examine a series of big purchases of call options tied to H.J. Heinz ahead of the ketchup maker’s $23 billion takeover by Berkshire Hathaway and the Brazilian-backed investment firm 3G Capital.

According to the S.E.C. complaint filed on Thursday, Mr. Badin first sought to open a trading account at Interactive Brokers on May 10, succeeding six days later. From May 21 to May 28, the day before the Smithfield deal was announced, the trader bought 3,000 call options tied to the American pork processor’s stock, which were exercisable at $29 to $30 a share.

At the time, Smithfield’s shares were trading below $26.50, rendering the options out of the money. But the purchases comprised the vast majority of trading volume in Smithfield options for that week and for all of May, essentially cornering the market in those securities.

He also bought 2,580 single-stock futures contracts and 100 common shares of Smithfield. All told, Mr. Badin paid about $95,450.84, though he also posted more than $1.3 million in margin.

On May 29, Smithfield announced its deal with Shuanghui International of China, which agreed to pay shareholders $34 a share. Smithfield shares quickly jumped on the news, rising to $33.35 by the end of trading that day.

Behind the S.E.C.’s actions is the agency’s belief that Mr. Badin was tipped off to a potential sale of Smithfield. The regulator noted in its complaint that one of the defendant’s Facebook friends is an employee of a Thai investment bank that was advising Charoen Pokphand Foods, a large food conglomerate that had held discussions with Smithfield.

Though Mr. Badin is based abroad, the proceeds of his trading are based in an American brokerage account. According to the S.E.C., he sought on June 3 to transfer more than $3 million from that account, prompting the agency’s move.

“As alleged in our complaint, not only did the defendant trade out of the money Smithfield call options, he further pumped up his profits by purchasing single-stock futures, thereby reaping a total unrealized return on his investment of 3,400 percent in the span of eight days,” Merri Jo Gillette, the director of the S.E.C.’s Chicago office, said in a statement.

The agency is seeking the disgorgement of the trading gains, as well as financial penalties.

From: http://dealbook.nytimes.com/2013/06/06/s-e-c-freezes-assets-of-thai-trader-in-smithfield-inquiry/

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