SEC Issues Asset Freeze Against Insider Traders

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The U.S. Securities and Exchange Commission (SEC) recently announced an emergency court order to freeze assets tied to two brokerage accounts used last week to reap over $1 million. The accounts are allegedly involved in an insider trading scheme in connection with a merger announcement by telecommunications companies.

According to the agency, highly suspicious transactions were detected surrounding the recent announcement that Liberty Interactive Corp. (NASDAQ: QVCA) had agreed to acquire General Communication Inc. (NASDAQ: GNCMA).

The traders, who are currently unknown, allegedly used foreign brokerage accounts in the United Kingdom and Lebanon to purchase call option contracts through U.S.-based brokerages and on U.S.-based exchanges in the days leading up to the April 4 public announcement of the acquisition. The court’s order freezes the foreign accounts’ assets contained in the U.S. brokerages.

Some of the risky options positions taken in these accounts represented roughly 100% of the market for those options. Following the acquisition announcement, General Communication’s shares rose more than 62% and the brokerage account customers allegedly sold the bulk of the contracts.

The emergency court order requires that the traders repatriate any funds or assets located outside the United States that were obtained from the alleged insider trading, although the traders are currently unknown.

Michele Wein Layne, director of the SEC’s Los Angeles Regional Office, commented:

As alleged in our complaint, the timing, size, and profitability of the trades as well as the absence of any recent trading by the accounts in these particular securities make the transactions highly suspicious. We don’t hesitate to act quickly and proactively to freeze accounts and prevent proceeds from dissipating while we continue to investigate dubious transactions and identify the traders behind them.