By Hal M. Bundrick
NEW YORK (
)--Onyx Pharmaceuticals rejected last Sunday's acquisition offer from Amgen, but traders with apparent inside knowledge scored millions before the deal publicly hit the skids, according to the Securities and Exchange Commission.
The SEC says that unknown traders placed a bet that Onyx's stock price would see a bump on news of the potential deal by purchasing call options prior to the announcement. The traders scored $4.6 million in possible illegal profits in just three days, a 14,200% return. The agency took emergency action to freeze the traders' assets before courts closed for the 4th of July holiday.
Onyx's board of directors rejected Amgen's proposal, which represented a 38% premium to Onyx's closing share price on Friday June 28, 2013. The SEC complaint alleges that as a result of the announcement, Onyx's share price increased from a close of $86.82 to a close of $131.33 on Monday July 1, an increase of over 51%, placing the defendants in a position to gain substantial profits. Onyx's trading volume also increased by over 900% from June.
The SEC alleges that "certain unknown traders were in possession of material nonpublic information about the offer to acquire Onyx at a substantial premium over the stock price at the time they purchased Onyx call options, many of which were out-of-the-money in the three trading days before the announcement."
According to the complaint, the timing and size of the trades were highly suspicious because they constituted large increases over the historical volume for the call options purchased.
The emergency court order obtained by the SEC freezes the traders' assets related to the Onyx call options transactions and prohibits the traders from destroying any evidence. The SEC says the defendants are either located in, or trading through accounts located in Beirut and the Canary Islands.
--Written by Hal M. Bundrick