SEC Probing Burlington Northern Deal : Spinoff of Unit Prompts Check for Inside Trading

SEATTLE — Burlington Northern Inc., which includes the nation’s largest rail system, is under investigation by the Securities and Exchange Commission for possible insider trading, company officials say.

Don Pope, a spokesman for the holding company said Tuesday that the “informal, routine investigation” began shortly after an announcement June 2 that Burlington Northern was splitting in two.

The probe was sparked by an “abnormally high trading volume” before the move, especially on May 17 and 23, he said.

Pope said corporate attorneys told him that although they don’t know the focus of the investigation, they have “no indications” that any Burlington Northern officer is a subject of the probe.

Burlington Northern Railroad separated from energy, timber and real estate operations, which were spun off into a new concern, Burlington Resources.

On July 7, in accordance with an earlier announcement, 20 million common shares representing 13% of Burlington Resources were sold at $25.50 a share. The remaining 87% of the shares are to be distributed to Burlington Northern shareholders Dec. 31. Analysts said the move was intended to boost the value of Burlington Northern stock and make a takeover bid less likely.

Burlington Northern Chairman Richard M. Bresler has said the split was arranged partly because companies in one line of business had become preferred over conglomerates.

Illegal insider trading could result in civil action by the SEC, criminal charges brought by the Justice Department or both.

Some Names Requested

Burlington Northern is cooperating in the probe and has hired the Washington law firm of Fried, Frank, Harris, Shriver & Jacobson, which represented former Wall Street mega-speculator Ivan F. Boesky in a record $100-million insider trading settlement with the SEC, he added.

On May 23, Burlington Northern Inc. was listed as the 13th most-active stock on the New York Stock Exchange with 734,900 shares traded and closed at $57.875, down $2.375.

On May 17, the stock missed the most-active list with a volume of 273,800 shares and closed at $62.25, down $1.625.

On June 2, when the spinoff was announced, volume was about 2.7 million shares as the stock rose $1.75 to close at $69.125.

SEC investigators have requested “information on the events leading up to the announcement,” Pope said

In addition, James Schropp of Fried Frank said investigators requested the names of all Burlington Northern officials who were involved in the deal and questioned William Pontius, vice president of Glacier Park Co., the main real estate subsidiary.

Pontius was not accused of any wrongdoing but was asked about people outside the company who might have been involved in trading, Schropp said.

“It was felt that Mr. Pontius could shed light on that question,” he said without elaborating.