[Editor's note: This story was updated at 3:39 p.m. April 29.]
The U.S. Securities and Exchange Commission (SEC) on April 29 obtained an asset freeze in connection with suspected fraudulent trading in Anadarko Petroleum Corp. before the oil company agreed to be acquired by rival Chevron Corp.
U.S. District Judge Gregory Woods in Manhattan granted the freeze over accounts linked to suspicious purchases between Feb. 8 and April 1 by unknown buyers of Anadarko securities, who the SEC said stand to make roughly $2.5 million in illicit profits, according to a court filing.
In a separate complaint, the SEC said the traders were unknown as they used accounts located in Britain and Cyprus, making a series of "large, unprecedented purchases" of call option contracts in Anadarko days after the company began acquisition talks, and weeks before the potential agreement was made public.
"The timing, size, nature, and profitability of the Defendants' trades, as well as the lack of prior history of significant Anadarko options trading in the subject accounts, make the trades at issue highly suspicious," the SEC wrote.
Chevron announced on April 12 it would buy Anadarko for about $33 billion, not including debt. However, Occidental Petroleum Corp., launched an unsolicited $38 billion bid for Anadarko on April 24, which Anadarko said April 29 it would negotiate.
RELATED: Occidental Petroleum’s Recent Takeover Bid Catches Anadarko’s Attention
The first suspicious purchases were made on Feb. 8, two days after Chevron privately proposed an acquisition to Anadarko, according to the SEC. All told, 1,650 call options were purchased across four transactions between then and April 1. Each purchase accounted for a large portion of such call purchases on each particular day.
Buying a call option conveys the right, but not the obligation, to purchase shares at a fixed price in the future. The value of calls can jump sharply when the underlying stock's price rises.
For example, in one of the trades laid out in the SEC filing, on April 1, 650 Anadarko contracts betting on the shares rising above $50 by mid-May were bought for $1.07 per contract.
By April 12, these calls traded as high as $13.18, according to Refinitive data.
The SEC said the unknown parties stand to make roughly $2.5 million in illicit profits from the trading, after selling or exercising the options to buy company stock after the potential deal was announced, which sent the company's stock higher. The day Chevron announced it planned to purchase Anadarko, the company's stock jumped 32%.
While it has not yet identified specific individuals, the SEC believes the traders are located outside the United States, adding there is a "significant risk" the illicit proceeds may move overseas shortly.
The asset freeze orders any parties that receive notice must not withdraw, transfer or dispose of assets related to the allegations.
The SEC declined to comment on the case beyond its complaint, while Anadarko could not immediately be reached for comment.
Options activity has been known to spike before the public announcement of deals and other news that tends to move stock prices, and the SEC has in the past announced enforcement action for alleged insider trading involving options.
Anadarko shares have trailed other energy companies in recent years, but they recently got a boost from the twin takeover offers.
By the afternoon of April 29, its shares were trading largely steady at about $72.79.
Recommended Reading
Kissler: Mideast Tension Elevates Crude Prices—But for How Long?
2024-05-09 - Producers should be aggressive in locking in desirable crude oil prices on an abnormal market strength.
Despite Sanctions Russia Still World’s Fourth Largest LNG Exporter
2024-05-23 - Russia ranked as the world’s fourth-largest LNG exporter in 2023, sending out cargoes of 30 mtpa. Russia’s LNG capacity could surpass 74 mtpa capacity by 2030, according to details published by Flex LNG.
Paisie: OPEC+ Will Be Able to Manage Prices
2024-07-11 - Disappointing economic news has contributed to a drop in oil prices.
TotalEnergies Joins Ruwais LNG Project in UAE
2024-07-11 - French energy giant TotalEneriges joined the two-train 9.6 million tonnes per annum Ruwais LNG project in the United Arab Emirates with a 10% interest. The LNG project is expected to start sending out cargos in the second half of 2028.
DC Appeals Court Sends Louisiana LNG Permit Decision Back to FERC
2024-07-17 - The Washington D.C. Court of Appeals' decision follows a railroad dispute headed to the Supreme Court this fall.