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Globe says SEC told insider trading "pervasive"

2014-07-15 08:51 ET - In the News

The Globe and Mail reports in its Tuesday edition insider trading continues to be "pervasive" before mergers and acquisitions but rarely leads to prosecutions, according to an analysis by professors in Canada and the United States. The Globe's Janet McFarland writes that the new study found abnormal trading in 25 per cent of 1,800 U.S. takeover deals between 1996 and 2012. The review examined trading in put and call options, which are attractive vehicles to use for insider trading. The unusual trading was most pronounced in low-priced call options that are out-of-the-money at the time of purchase and short-dated to expire quickly, which the authors say are among the securities that would most likely be used by someone with insider knowledge of a pending deal. For options with those features, the unusually beneficial trading results could have happened by chance in only three cases in a trillion. The study was initially sparked by unusual trading prior to a takeover bid for H.J. Heinz Co., which was unveiled in February, 2013. The Securities and Exchange Commission reached a $5-million (U.S.) settlement agreement last October with two men accused of buying out-of-the-money Heinz call options.

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