Asset freezing: USA's SEC freezes assets of unknown persons

SEC statement: (verbatim)

6 June, 2011

Securities and Exchange Commission v. One or More Unknown Purchasers of Securities of Telvent GIT S.A., 11 Civ. 3794 (TPG) (S.D.N.Y.) (filed June 3, 2011)

On June 3, 2011, the U.S. District Court for the Southern District of New York entered a Temporary Restraining Order freezing assets and trading proceeds of certain unknown purchasers of the securities of Telvent GIT S.A. (the “Unknown Purchasers”). The Commission filed a complaint alleging that the Unknown Purchasers engaged in illegal insider trading in the days preceding the June 1, 2011 announcement that Schneider Electric S.A., a French company, and Telvent, a company based in Madrid, Spain, had entered into an agreement under which Schneider would offer to acquire all of the outstanding common stock of Telvent at a price of $40 per share, a 16% premium over the previous day’s closing price. The Commission’s complaint alleges that the Unknown Purchasers, through their insider trading, violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks permanent injunctive relief, the disgorgement of all illegal profits, and the imposition of civil money penalties.

The Commission’s complaint alleges that between April 29, 2011 and May 27, 2011, the Unknown Purchasers bought 1,200 Telvent call option contracts through an account at Pershing LLC. About two-thirds of the call option contracts were purchased within five calendar days (or two trading days) before the acquisition announcement and comprised as much as 52% of the volume of that series of call options that day. The price of the call options held by the Unknown Purchasers rose dramatically. In one instance, the price of the options increased by about 480%. The complaint alleges that, as a result, the Unknown Purchasers realized total profits of approximately $475,000 from the sale of the call options.

In addition to freezing the assets relating to the trading, the Temporary Restraining Order requires the Unknown Purchasers to identify themselves, imposes an expedited discovery schedule, and prohibits the defendants from destroying documents.

Editorial

The story raises a number of questions not the least of which is why the SEC has, so far, been unable to identify persons trading through an account with a registered broker-dealer.

Also, the SEC does not say what assets have been frozen and where they have been located.

As a result of the failure to provide any due diligence information, other financial services businesses are unable to take action in relation to assets which they may hold for the specified persons.

Also, the order does not specify whether the assets frozen are sufficient to meet the gains from the alleged offences.

As a result, other financial institutions are unable to assess whether they may be holding assets which are subject to the freezing order.