Thursday, October 6, 2005

Unknown Purchasers Are Out $2.7 Million

In March 2004, the SEC filed a civil injunctive action against unknown purchasers of InVision Technologies, Inc. call options shortly before the company announced that it had agreed to be acquired by General Electric.  The option purchases were through accounts at a Swiss private bank, and the purchases were executed through UBS, a global securities firm.  Not surprisingly, the identity of the actual purchasers was not disclosed, and the SEC moved quickly to freeze the proceeds of the transaction before the money left the country.  The unknown purchasers bought over 4500 out-of-the-money short term call options in the week before the announcement, and had total profits of approximately $2.7 million (although not all the call  options were sold, and likely expired unexercised).  Such a transaction is sure to get the SEC's attention, and the Enforcement Division filed a TRO action to freeze the accounts the day after the announcement of the deal.  According to the SEC's most recent Litigation Release (here), the U.S. District Court for the Southern District of New York issued an injunction forfeiting the proceeds of the transactions and enjoining the unknown purchasers from future violations of the securities laws.  This is not an injunction likely to be enforced in the future given the fact that no one decided to show up in the United States to put in a claim for the money, which would trigger an immediate arrest by the FBI or Postal Inspectors on insider trading charges.  Funny how those unknown purchasers never quite seem to show their faces, but at least they thought they could get away with a big killing in the market. (ph)

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