This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Insider Trading Could Plague Foreign Deals

Stocks in this article: SFDHNZBKWGS

NEW YORK ( TheStreet) -- Insider trading may be a new risk to international dealmakers seeking to buy U.S. companies, as regulators begin a review of what could be the largest-ever acquisition by a Chinese buyer of a U.S. firm.

In a Thursday complaint, the Securities and Exchange Commission brought forward allegations a Thai trader may have illegally profited from inside information about the recently announced proposed purchase of Smithfield Foods (SFD) by Shuanghui International Holdings.

The allegations come after a string of similar complaints involving acquisition efforts by emerging market firms for North America companies, and raise the prospect that insider trading concerns could put a damper on international mergers.

In the wake of Smithfield's announced acquisition by Shuanghui for $4.7 billion, most media reports are focusing on how the deal among pork industry heavyweights will test regulators' resolve to allow Chinese firms to invest in the United States. Senators, regulators and the Committee on Foreign Investment in the United States (CFIUS) will take a close look at whether Smithfield's acquisition raises national security concerns.

A bigger issue, however, may be the rash of insider trading allegations after the SEC said Thursday it froze the assets of a Thai trader who the regulator alleges made an illicit profit of $3 million on a tip about Smithfield's sale to Shuanghui.

Other large cross-border deals, notably Heinz's (HNZ) pending acquisition by Berkshire Hathaway (BRK.A) and 3G Capital of Brazil and CNOOC's (CEO) acquisition of Canadian oil and gas driller Nexen (NXY) have also been bogged down by insider trading inquires.

Allegations of impropriety tied to such high profile deals could cool U.S. firms' interest in selling to foreign buyers, given less strict regulation in emerging markets such as China and Brazil.

The allegations may also give U.S. regulators new reasons to be skeptical of foreign acquisitions of U.S. firms, beyond traditional CFIUS reviews.

To be clear, none of the companies involved in large recent deals are accused of any wrongdoing.

Instead the SEC allegations or inquiries target brokers, bankers and traders who may have benefitted from non-public inside information in trades prior to the announcement of each deal.

In Thursday's allegations, the SEC claims Badin Rungruangnavarat of Thailand purchased thousands of out-of-the-money Smithfield Foods call options and single-stock futures contracts from May 21 to May 28 in an Interactive Brokers account after receiving material, nonpublic information about the firm's potential acquisition.

The SEC's complaint states that one of Rungruangnavarat's sources of non-public material information was a Facebook friend who is an associate director at an investment bank a company that was exploring an acquisition of Smithfield.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs