Less than a week after word leaked that Onyx Pharmaceuticals had rejected a $10 billion offer from Amgen, the US Securities and Exchange Commission has filed a lawsuit accusing an unnamed number of people of insider trading and making about $4.6 million in potentially illegal profits on a $305,000 investment, according to court documents.
The unnamed traders purchased call options on June 26, 27 and 28, just prior to the June 30 statement that Onyx rejected the Amgen bid and had, essentially, put itself up for sale. The rejection, however, was first reported on June 28 in The Financial Post, underscoring that information about the offer had been circulating widely (here is the lawsuit).
The SEC lawsuit alleges that as a result of the June 30 announcement, Onyx stock rose 51 percent the following day compared with the closing price on the prior trading day, and that the trading volume increased by over 900 percent. The $120 price offered by Amgen (AMGN), by the way, represented a 38 percent premium prior to the June 30 rejection issued by Onyx.
In its complaint, the SEC says the traders caused a "highly suspicious" spike in the volume of Onyx call options in the three trading days before the buyout offer was made public. Call options give investors who expect a share price to increase the right to buy stock at a pre-set price for a certain period of time. The SEC noted there was little trading in Onyx call options before the offer was made public.
The SEC obtained an emergency court order to freeze assets of traders using foreign accounts related to transactions in Onyx call options and prohibits the traders from destroying any evidence. The regulator added that traders used omnibus accounts at Citigroup Global Markets and Barclays Capital, and the traders or the accounts are located in the Canary Islands and Beirut.
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