Trading of Petco Options Probed
The Securities and Exchange Commission said Wednesday that it suspected insider trading in connection with last week’s announcement of a $1.68-billion buyout of San Diego-based Petco Animal Supplies Inc.
The agency obtained a court order to freeze the $862,000 in profit that unnamed purchasers made buying call options on Petco shares ahead of the announcement, the SEC said.
“In the coming days, we anticipate being able to identify who the actual purchasers are,” said Randall Lee, the SEC’s regional director in Los Angeles.
In a complaint filed in federal court in San Diego, the SEC said one or more buyers used financial institutions in Switzerland and Britain to buy Petco call options from June 27 to July 13.
The options were out of the money, meaning the stock would have had to rise for the buyers to make a profit.
Petco shares soared Friday from $19.45 to $27.89, a 43% gain, after buyout firms Texas Pacific Group and Leonard Green & Partners agreed to acquire the pet-products retailer for $29 a share.
Call options are traded securities that allow an investor to buy a stock at a set price by a specified date.
Lee said the SEC didn’t know whether any of the individuals targeted in the suit worked at Petco. He said the suspicious trading was referred to the SEC by the Chicago Board Options Exchange.
According to the SEC complaint, on June 27 one or more investors bought options to purchase 311,000 Petco shares at $20 each through Man Financial Ltd. in London.
The next day, investors bought options on an additional 967,000 Petco shares through Man and Habib Bank in Zurich, Switzerland. The unknown investors placed another order with Habib for options on 185,000 Petco shares Thursday, one day before the buyout was announced.
Habib routed its orders through Bache Financial Ltd., a Swiss brokerage, which then placed the trade through its U.S. affiliate, Prudential Equity Group, the SEC said.
In requesting the asset freeze, the SEC said that the unknown investors sold the options after the merger was announced and could transfer their proceeds “at any time.”
Petco, which operates more than 800 stores in 49 states and also sells pet supplies over the Internet, has struggled to compete with low prices offered by rivals such as PetSmart Inc. Petco stock had been down 11% year to date before the buyout was announced.
