US judge freezes Goldman Sachs account over 'suspicious' Heinz trading

A US judge froze a Goldman Sachs account that regulators say was used to make suspicious trades in H J Heinz, after unknown traders failed to appear in court to defend their claims to the assets.
When the unidentified traders didn't show up at a hearing on Friday in Manhattan, a US district judge, Jed Rakoff, said he would grant the US Securities and Exchange Commission's (SEC) request to freeze the Goldman Sachs account in Zurich until the case was resolved.

"They can hide, but their assets can't run," Mr Rakoff announced, saying he had granted the SEC's request and signed the freeze order.

The agency said in its complaint that the trades came a day before Warren Buffett's Berkshire Hathaway and 3G Capital announced the US$23 billion (Dh84.4bn) takeover of Pittsburgh-based Heinz. The suspicious trading involved call-option contracts, the SEC said.

Goldman Sachs told the regulator it doesn't have "direct access" to information about the beneficial owner behind transactions in the account. The New York-based bank told the agency the account holder is a Zurich private-wealth client, the SEC said. Goldman has said it is co-operating with authorities.

The SEC on February 15 sued "unknown" traders who used an "omnibus account" and invested almost $90,000 in Heinz option positions the day before the deal was announced. As a result, their position increased to more than $1.8 million, a rise of almost 2,000 per cent in one day.

The SEC, which obtained a preliminary freeze on the funds from Mr Rakoff on February 15, said that the traders had material nonpublic information about the impending deal when they bought 2,533 call options, which had a strike price of $65 on February 13. Shares closed that day at $60.48.

Heinz shares jumped 20 per cent to $72.50 on February 14, following the announcement that Berkshire Hathaway and Jorge Paulo Lemann's 3G Capital had agreed to buy Heinz. As a result of the takeover announcement, the price of the June call options jumped to a close of $7.33 on February 14 from 40 cents the day before, an increase of more than 1,700 per cent.

Mr Rakoff, who on February 15 put a temporary freeze on the assets in the Goldman Sachs account, directed anyone connected to the trades to appear before him at 2pm local time on Friday to explain why the assets should not be permanently restrained.

The FBI said last week that it was also investigating the matter and was working with the SEC.

The SEC wants the assets frozen until the case is resolved because there is a "serious risk that the substantial proceeds from the defendants' trading will leave the jurisdiction of the US courts in the next few days and may never be recovered," according to a court filing.

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