Recently, the Securities and Exchange Commission announced it had received an emergency court order to freeze the assets of a group of traders who earned $4.6 million in potentially illegal profits by trading in advance of the Sunday, June 30, 2013 announcement that Onyx Pharmaceuticals, Inc. had received, but rejected an acquisition offer from Amgen, Inc.
According to the SEC, the traders purchased risky call options in the three days leading up to Onyx’s announcement that it had rejected Amgen’s offer and was putting itself up for sale. After Onyx announced the attempted acquisition offer, its share price increased dramatically to over 50% of its previous value.
The $4.6 million in the trader’s profits were based on an investment of just $305,000.
Before the courts closed for the Fourth of July holiday, the SEC took emergency action to freeze the trader’s assets. “This action demonstrates that the SEC will not hesitate to freeze the assets of suspicious foreign traders when the timing and size of their trades indicate that they were misusing inside information, and use of foreign accounts will not dissuade us,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.
According to the SEC’s complaint, the traders used foreign accounts to perform the timely purchases of Onyx call options, which lead to a dramatic rise in Onyx’s trading volume by over 900% in the three days prior to the company’s announcement.
The SEC said the size and timing of the options trades “were highly suspicious because they constituted large increases over the historical volume for those call options purchased.”
Amgen’s proposal to acquire all of Onyx’s shares at a $120 per share price offer represented a 38% premium to Onyx’s closing share price of $86.82 on Friday, June 28, 2013. However, as a result of the announcement that Onyx had declined Amgen’s proposal, Onyx’s share price increased from the close of $86.82 on June 28 to a close of $131.33 on Monday, July 1, an increase of over 51%, placing the traders in a position to gain substantial profits.
The SEC is seeking a final judgment ordering the traders to disgorge their ill-gotten gains with interest, pay financial penalties, and permanently bar them from future violations.