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by Mike Caswell

The U.S. Securities and Exchange Commission has filed an insider trading case against two Spaniards who netted $1.12-million in profits by trading options in Potash Corp. of Saskatchewan Inc. ahead of BHP Billiton PLC's takeover bid. (All figures are in U.S. dollars.) The SEC claims that the men bought out-of-the-money options for Potash Corp. just days before BHP offered to acquire the company for $130 per share.

SEC's complaint

The SEC's complaint, filed on Aug. 20, 2010, in the Northern District of Illinois, identifies the two men as Juan Jose Fernandez Garcia and Luis Martin Caro Sanchez, both of Madrid. Mr. Garcia is the head of European equity derivatives at Banco Santander SA, an adviser to BHP in its bid for Potash Corp.

According to the complaint, Mr. Garcia bought $13,669 worth of high-risk call options for Potash Corp. between Aug. 12 and Aug. 16, 2010. The options had strike prices between $110 and $130, which meant that Mr. Garcia could buy Potash shares at those prices. Since the company traded between $106 and $112, the options had little value when he originally purchased them. Many of the contracts also expired on Aug. 21, which meant that the options would have been worthless if Potash did not rise sharply within days.

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