Federal investigators probing suspicious investing before the $28 billion H.J. Heinz deal may have kept a secret for months: the identity of the mystery trader.
Swiss regulators identified the trader in 800 pages of documents given to U.S. authorities in July, according to a federal court filing by a lawyer representing a Cayman Islands holding company named in a Securities and Exchange Commission lawsuit.
The revelation is the latest twist in a seven-month investigation that traced suspicious Heinz trades from a Swiss account to Alpine Swift Ltd. of the Cayman Islands and appears to stretch to Brazil.
No individual is named in the case that has SEC investigators navigating banking and corporation secrecy laws in Switzerland and the Caymans as they pursue the source of inside information.
The SEC opened its case the day after Warren Buffett’s Berkshire Hathaway and 3G Capital, an investment firm owned by Brazilian billionaires, said they would buy Pittsburgh ketchup maker Heinz for $28 billion.
Alpine Swift’s lawyer, Juan Morillo, said in the court filing on Monday in New York that his client did not authorize the trades before the February acquisition announcement.
The trader “did not have a power of attorney or other authority to place transactions in Alpine’s account and placed the Heinz transaction without Alpine’s knowledge,” Morillo argued in the filing. He asked the court to drop Alpine Swift from the lawsuit.
Though he did not name the trader, Morillo alleged that person is connected to a Brazilian investment adviser. Morillo could not be reached for comment.
SEC spokeswoman Christina D’Amico declined to comment.
Until recently, the only public knowledge of the SEC’s allegations was that “certain unknown traders” used a Goldman Sachs trading account in Zurich to place risky bets on Heinz stock rising in value days before the buyout announcement.
Last week, it became public that the SEC in August ordered Alpine Swift to appear in U.S. District Court in New York, though the agency has not disclosed why.
Morillo said the SEC received paperwork from Finma, a Swiss regulator, that pointed to the trader.
“In July 2013, Finma delivered to the SEC nearly 800 pages of documents related to the Alpine account and the circumstances of the Heinz transaction,” Morillo’s filing said. “These documents clearly identified the trader who placed the Heinz transaction. … For inexplicable reasons, after nearly two months of knowing the identity of the trader, SEC still has made no attempt to add the trader to this action.”
Peter Henning, a law professor at Wayne State University in Detroit and former fraud investigator for the SEC and Justice Department, said the SEC appears to be making progress with its investigation.
“They are getting closer to … who did the trading, but more importantly, (to answering) who was his or her source,” Henning said.
Finding a source with knowledge of the pending deal is key to proving insider trading. Without it, the trader could argue he or she simply made a lucky bet.
Henning said he expects the SEC to “cast a wide net” to encompass anyone connected to the trader as investigators try to determine who leaked information about the Heinz deal. Yet the investigation faces difficultly because those people may be outside the United States and out of the reach of American law enforcement, he said.
“Even if they know who this person is, they don’t have the same tools as you do with a person in the U.S.,” he said. “They could hit a wall.”
The Morillo filing shows that Alpine Swift, which owns the Goldman Sachs account in Zurich, holds investment assets owned by Cayman Islands irrevocable trust, Troika Trust.
The trust is owned by an unnamed Brazilian who, according to Morillo, has no authority over Alpine’s investment activities. An investment advising firm in the British Virgin Islands, owned by another unnamed Brazilian citizen, has investing responsibilities.
The trades could have netted $1.7 million in profit based on the 20 percent rise in Heinz stock value once the deal went public. The SEC won a court-ordered freeze on Alpine’s account, preventing anyone from cashing in.
This is not the first time that insider-trading allegations have followed a 3G Capital acquisition, though the SEC has not accused 3G executives of wrongdoing.
The SEC alleged that Waldyr Da Silva Prado Neto, a Brazilian working as a stockbroker in Miami, profited in 2010 from advance knowledge that 3G would buy Burger King. The broker made $175,000 on the deal and shared the information with others who made illegal trades, according to the SEC.
The agency froze Prado Neto’s bank accounts in 2012. He had fled to Brazil, the SEC said.
3G spokesman Steve Lipin declined to comment.
Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or email@example.com.