Friday, March 2, 2007

SEC files insider trading suit against TXU

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DALLAS — A Federal Court in Chicago entered a temporary restraining order freezing assets of some unknown buyers of call options for the common stock of TXU Corp. The SEC's complaint alleges that these buyers engaged in illegal insider trading, in violation of the antifraud provisions of the federal securities laws.

In addition to freezing approximately $5.4 million in assets, the Court's order requires that these unknown buyers identify themselves, provides for expedited discovery, and prohibits the defendants from destroying evidence.

Photo not provided by the SEC

In retrospect, they should have used offshore banks.

The SEC's complaint alleges that highly profitable and suspicious purchases of call option contracts for the common stock of TXU Corp. were placed by mystery buyers through overseas accounts in late February 2007. These purchases were made in advance of a public announcement on February 26, 2007, that TXU had executed a merger agreement with private equity groups headed by Kohlberg Kravis Roberts & Co., Texas Pacific Group and Goldman Sachs & Co.

The SEC further alleges that as a result of the announcement, TXU's common stock jumped more than 13% over its previous trading day closing price, placing the foreign buyers in a position to gain substantial profits.

The SEC is seeking permanent injunctive relief, disgorgement of the ill-gotten gains with prejudgment interest, and civil monetary penalties. Read the SEC's complaint here.

Source: SEC

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