SEC Probes FHP Stock Deals
The Securities and Exchange Commission is investigating whether FHP International Corp. shares were illegally traded before the Fountain Valley-based health maintenance company announced earlier this month that it would be acquired by PacifiCare Health Systems Inc. for $2.1 billion.
Both companies said Friday that they have received letters from the agency notifying them of its investigation and are cooperating.
On Aug. 1, two business days before the companies announced the deal, trading volume in FHP common stock jumped to nearly 1.1 million shares on the Nasdaq market, about five times its level of 205,600 the day before. Volume on Aug. 2, a Friday, then popped up to 1.6 million shares.
On Aug. 5, when PacifiCare announced that it would buy FHP for $35 a share in cash and stock, FHP stock jumped to close at $35.25 a share, up $7.375 from the previous week’s close.
Last week, the Chicago Board Options Exchange said it is investigating unusually heavy trading of FHP stock options in the days leading up to the announced purchase. Neither company has received any formal notification of the CBOE’s investigation, however.
An FHP spokeswoman, Ria Carlson, said it’s “very, very difficult” to estimate how many people knew about the deal in advance of its announcement. “There were attorneys involved, investment bankers, management with both companies,” she said.
Ben Singer, a PacifiCare spokesman, noted, however, that the number of PacifiCare insiders was “a small circle. We have a senior council of 12 executives who run the company’s operation in the six states, and not [even] all of them knew.
“Nobody is being served well by these kinds of allegations,” he added.
Volume in FHP options jumped to nearly 10 times the usual level on Aug. 1.
On that day, investors purchased more than 2,000 FHP call option contracts, some of which gave the buyers the right to purchase FHP stock for as low as $25 a share before Aug. 17.
Previously, trading volume in FHP options averaged about 200 contracts daily, according to a company that tracks such trade.
