SoftBank the Japanese technology giant announced the deal of $3.3 billion to buy Fortress on Feb 14 but before this announcement was made some unknown traders made a profit of $3.6 million on inside information. The US authority, Securities and Exchange Commission (SEC) said in the court filing, “The traders were in possession of material non-public information about the impending acquisition when they purchased Fortress [securities] in the days leading up to the public announcement of the takeover.”
The $8.08-a-share deal between the two was announced on Feb 14 after the US markets had closed for the day. Until Feb 12 there was no clarity if the deal will happen or not and the Fortress board received the email only on the morning of Feb 14 at 11.02 am confirming the deal. This email had the draft resolutions that confirmed that the transaction is approved.
Some of the traders that the SEC recognised as customers of Maybank Kim Eng Securities which is a Singapore-based broker-dealer bought shares of Fortress some 25 minutes later in the price range of $5.92 to $6.35 a share. SEC also found that customers of a broker-dealer based in the U.K, R.J. O’Brien Ltd. began buying the contracts for difference on Feb. 10 and the additional CFDs were acquired on Feb. 14 at 9:33 a.m. The shares of Fortress closed 6.5% higher on that day and the call options were also eight times more than the monthly average. The Fortress shares surged by 28% on Feb 15 once the deal was announced after markets closed on Feb 14th. The shares closed at $7.99 a little less than the deal price. These traders made a neat profit of more than $1.6 million after holding the shares for less than 24 hours.
These transactions came under the eyes of the US regulators who then filed a case for freezing the traders’ assets and won it. The New Jersey judge granted this order to SEC for “highly suspicious transactions within days of the public announcement.” Thus SEC is able to freeze the assets of those traders that it found dubious.
The asset freeze by SEC on court orders will prevent these traders from removing the illicit profits from their accounts till the investigation continues.