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Insider Trading Could Plague Foreign Deals

The insider trading allegation connected to the Smithfield is similar an investigation made by the SEC related to Heinz's takeover.

The SEC alleged in that merger a dormant trading account in Switzerland bought call options for Heinz just ahead of the ketchup maker's purchase by Berkshire and 3G Capital, in what the regulator said was a violation of securities laws.

The SEC alleges that on Feb. 13, a day prior to the announcement of Heinz's acquisition, the Swiss options account bought 2,533 out-of-the money June $65 calls for a total of nearly $90,000. "Between Sept. 1, 2012, and Feb. 13, 2013, the account through which the defendants traded had no prior history of trading in Heinz," the SEC states.

When Heinz's $72.50-a-share acquisition was announced, those trades stood to gain nearly $1.8 million, a 1,700% return from the prior day when the contracts were traded. The alleged insider trading traced back to an account at Goldman Sachs, however, it's owners didn't appear at a U.S. court hearing freezing the account's assets and a criminal inquiry is ongoing.

In November, Brazilian ex-banker Igor Cornelsen and his firm Bainbridge Group agreed to pay $5.1 million to settle SEC allegations that he made illegal trades ahead of 3G's 2010 acquisition of Burger King Holdings after receiving an insider tip from a Wells Fargo broker in Miami.

The SEC is also investigating Hong Kong billionaire Zhang Zhirong's millions in options trading profits on CNOOC's acquisition of Nexen for $15.1 billion, according to a July 2012 complaint brought forward by the regulator. According to the complaint, the SEC's investigation continues, however it has frozen the account's assets.

The string of insider trading allegations and inquiries in some of the most notable recent cross-border merger efforts in North America indicate risks beyond simple national security issues.

While the Smithfield Foods acquisition may be a bit of a lightning rod for fears about foreign ownership of U.S. firms, the insider trading allegations that have come with the acquisition may raise new concerns for investors, regulators and C-Suites.

-- Written by Antoine Gara in New York

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