The May 29th announcement that China-based Shuanghui International Holdings had agreed to acquire Virginia-based Smithfield Foods came with a lot of news value. First, the $4.7 billion price tag for Smithfield is large by any measure. Second, this deal – the largest-ever acquisition of a U.S. company by a Chinese company – has offered great opportunity for hand-wringing about whether China’s influence in the United States is becoming too great. But also: insider trading! Mergers of public companies always offer the promise of insider trading, as we were reminded today by the SEC. In an emergency action filed on an ex parte basis in the U.S. District Court for the Northern District of Illinois late yesterday, the SEC alleges what it thinks happened with respect to trading in Smithfield stock just before this deal was announced. According to the Commission’s press release, Bangkok, Thailand-based
Badin Rungruangnavarat purchased thousands of out-of-the-money Smithfield call options and single-stock futures contracts from May 21 to May 28 in an account at Interactive Brokers LLC. [Badin] allegedly made these purchases based on material, nonpublic information about the potential acquisition, and among his possible sources is a Facebook friend who is an associate director at an investment bank to a different company that was exploring an acquisition of Smithfield. After profiting from his timely and aggressive trading, [Badin] sought to withdraw more than $3 million from his account on June 3.
According to the SEC’s complaint, Badin is 30 years old and works at a plastics company in Bangkok. The SEC alleges in its complaint that he applied to open his account at Interactive Brokers on May 10th. The complaint also suggests that the source for the inside information, if any, may have been at a small Thai investment bank that was advising Charoen Pokphand Foods, a competing bidder for Smithfield. The SEC’s staff likely asked Interactive Brokers to freeze Badin’s account on a temporary basis while they prepared a motion for an asset freeze and temporary restraining order, which the court granted late yesterday. It will be interesting to see what Badin does to combat the asset freeze and the SEC’s claims. At any rate, this is very quick work by the SEC's staff to put this case together over last weekend. Update: Late on June 6th, the Wall Street Journal ran this correction: "Badin Rungruangnavarat should be referred to as Mr. Badin on second reference, according to custom for Thai names. Because of the way regulators referred to him in a press release and court filing, an earlier version of this article incorrectly referred to him as Mr. Rungruangnavarat." We made the same mistake, and have corrected this post the same way.