Brothers fined $5M in Heinz insider trading case

Two Brazilian brothers will pay nearly $5 million to settle charges that they were responsible for suspicious trading in stockoptions for H.J. Heinz one day before February's announcement of a surprise acquisition of the food giant.

Rodrigo Terpins, 40, placed the order to buy the call options on Feb. 13 while vacationing at Walt Disney World in Orlando, Fla., the Securities and Exchange Commission said Thursday. The transaction was based on material non-public information received by his brother, Michel Terpins, 36, the agency said.

Call options enable buyers to purchase a given stock at a certain price by a specified future date. They are generally bought when the purchaser believes a stock will increase in value.

The trading took place one day before a $28 billion acquisition of Pittsburgh-based Heinz was announced by 3G Capital and billionaire investor Warren Buffett's Berkshire Hathaway. The Feb. 14 announcement caused the suspicious call options to surge more than 1,700% in value, to more than $1.8 million.

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The SEC obtained an emergency order to freeze the account the following week.

Investigators learned that the older brother bought 2,533 Heinz call options that gave him the right to purchase 100 Heinz shares for $65 per share until June 22. The purchase was unsual, the SEC said, because only 14 June $65 call options had been purchased on Feb. 12, and none were bought on Feb. 11.

Rodrigo Terpins conducted the transaction through a Goldman Sachs broker in Switzerland and a Swiss account owned by a relative of the brothers, the SEC said. He insisted on completing the deal even though the broker "cautioned that Goldman currently rated Heinz a 'sell,' " according to an SEC amended court complaint.

"Rodrigo and Michel Terpins obtained confidential information prior to any public awareness that a Heinz deal was in the works,! and they exploited it to the disadvantage of all other traders in the marketplace," said Sanjay Wadhwa, senior associate enforcement director of the SEC's New York office.

Attorneys for the Terpins brothers did not immediately respond to messages seeking comment on the settlement, which is subject to federal court approval. The two neither admitted nor denied the allegations.

As part of the settlement, the SEC said the brothers and the Swiss account will disgorge $1,809,857 in illegal profits.

Berkshire Hathaway and 3G Capital completed the Heinz acquisition in June.

The suspicious Heinz options trading is among several recent cases of similar insider trading investigations pursued by the SEC. In August, the agency announced that Thailand trader Badin Rungruangnavarat would pay nearly $5.2 million to settle charges that he traded on nonpublic information ahead of the proposed acquisition of Smithfield Foods by China-based Shuanghui International Holdings.