Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Saturday, March 31, 2007

More Allegations in TXU Insider Trading Case

On March 28, the U.S. District Court  for  the  Northern  District  of Illinois in Chicago entered a  Temporary  Restraining  Order  freezing assets of Sunil and Seema Sehgal, a married  couple  residing  in  the United Kingdom. The Court issued the order following the  Commission's filing of an Amended Complaint, which added the Sehgals to the insider trading case that was previously  filed  on  March  2,  2007,  against certain Unknown Purchasers of TXU call options. The Amended Complaint alleges that the Sehgal's made highly profitable and suspicious purchases of 700 call option contracts for  the  common stock of TXU Corp. in January and February 2007. These  purchases  were made in  advance  of  a  public  announcement  that TXU  had  executed  a  merger  agreement  with private equity groups headed by Kohlberg Kravis Roberts &  Co.,  Texas Pacific Group and Goldman Sachs & Co.    The complaint alleges that as a result of the increase  in  price  of  TXU  stock  following  the  Announcement, the illicit profits on  the  Sehgal's  option  contracts total approximately $270,000.

  The Commission's complaint against the Unknown Purchaser alleges  that between February 21 and February 23 - prior to the  public  disclosure of the merger agreement - the  Unknown  Purchasers, using overseas accounts, purchased over 8,020  call  option  contracts  for  TXU  stock.  The  unrealized  illicit  profits  on  these  option contracts total approximately $5.4 million. On  March  28,  2007,  the District Court also approved an extension of the asset  freeze  as  to the Unknown Purchasers who purchased  TXU  securities  through  CreditSuisse in Zurich and Fimat Banque  Frankfurt  Zweigniederlassung.  The Court also approved a 60-day extension of the asset freeze as  to  the   Unknown Purchaser who traded through UBS AG London.

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