The Securities and Exchange Commission announced an emergency court order to freeze assets in two brokerage accounts that were used last week to obtain over $1 million in alleged insider trading profits in connection with the announcement that Liberty Interactive Corp. was set to acquire General Communication Inc.
In the days leading up to the public announcement, the SEC detected highly suspicious transactions in which the traders (as yet unnamed) allegedly used foreign brokerage accounts in the United Kingdom and Lebanon to buy call option contracts through US-based brokerages and exchanges.
According to the SEC’s complaint, some of the risky options positions taken represented virtually 100 percent of the market for those options. Following the public announcement, General Communication’s shares rose over 62 percent, and the brokerage account customers allegedly sold the bulk of the contracts.
The SEC’s complaint was filed in US District Court for the Southern District of New York, and the court’s order was to freeze the foreign accounts’ assets contained in the US brokerages.
Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office, said: “As alleged in our complaint, the timing, size, and profitability of the trades as well as the absence of any recent trading by the accounts in these particular securities make the transactions highly suspicious. We don’t hesitate to act quickly and proactively to freeze accounts and prevent proceeds from dissipating while we continue to investigate dubious transactions and identify the traders behind them.”
The emergency court order requires the unknown traders to repatriate any funds or assets located outside the US that were obtained from the alleged insider trading and not to destroy any evidence. The regulatory watchdog will be looking for a final judgment that orders suspicious traders to pay the insider trading profits plus interest and penalties.