Rodrigo Terpins was on vacation at Walt Disney World in Orlando, Fla., in February when he used his cell phone to contact a broker and put in an order to buy more than 2,500 call options on shares of Pittsburgh food maker H.J. Heinz Co.
That trade, according to a filing by the Securities and Exchange Commission in a New York federal court Thursday, was "effectively a wager that Heinz's stock would increase in value by approximately $5 a share."
It was a good bet.
The day after Mr. Terpins made the call, officials held a news conference at Heinz world headquarters in One PPG Place in Downtown Pittsburgh to talk about a plan for 3G Capital and Berkshire Hathaway to buy the historic ketchup maker for more than $28 billion.
Heinz shares soared on news of the planned sale, sending the value of Mr. Terpins' $90,000 investment to more than $1.8 million, according to the SEC, which took note of the suspicious buy and quickly moved to freeze assets in an account used to make the trade.
The SEC announced Thursday that Rodrigo Terpins, 40, and his brother, Michel Terpins, 36, both residents of Brazil, have agreed to pay nearly $5 million to settle charges that they knowingly acted on information that someone shouldn't have given them. The settlement reflects more than $1.8 million in "ill-gotten gains" and $3 million in penalties.
The two brothers did not admit or deny the allegations. Court approval of the settlement is still needed.
The SEC indicated its investigation is continuing, although a spokesman said attorneys working on the case can't comment on the potential for further action.
The amended complaint filed in court Thursday indicated the brothers obtained their advance knowledge of the sale from a source who disclosed the information "in breach of a fiduciary duty."
Details laid out in the complaint paint a more complete picture of a case that launched the day after the Heinz sale was announced, when the SEC won a court order freezing assets in a Swiss bank account connected to the trades.
In August, court papers had been served on a Cayman Islands investment holding company, Alpine Swift, that the SEC said holds assets for one of the Terpins' family members. In September, an attorney for Alpine Swift submitted a filing that said the trades had been made without permission and that the SEC had been given information by Swiss officials that identified the trader who placed the transaction.
Alpine Swift, according to the court filing Thursday, has a history of trading in U.S. securities through brokerage accounts at Goldman Sachs Bank AG in Switzerland. The Goldman Sachs broker associated with the account regularly met with Alpine Swift's investment adviser and members of the owner's family, including Rodrigo Terpins, to discuss the performance of its assets. Two weeks before the Heinz purchases, the broker met with Rodrigo Terpins and the investment adviser.
At some point before Feb. 13, Michel Terpins learned that an investment consortium including 3G Capital was about to announce the acquisition of Heinz, the filing said. He shared that information with his brother.
Rodrigo Terpins used the Alpine Swift account to place an order, rather than an account in his name or that of his brother, according to the SEC filing, even though he didn't have "explicit authority" to make trades in the account. "The trade was then executed anonymously through an omnibus account...." Alpine Swift hadn't bought any call options in the previous year.
According to the SEC, a broker told Rodrigo Terpins that the firm rated Heinz a "sell," but he went ahead with the trade.
"Rodrigo and Michel Terpins obtained confidential information prior to any public awareness that a Heinz deal was in the works, and they exploited it to the disadvantage of all other traders in the marketplace," said Sanjay Wadhwa, senior associate director for enforcement in the SEC's New York regional office, in a prepared statement.
"Those who use foreign accounts to commit insider trading in the U.S. markets should know that their activities can still be tracked and they will be held accountable by the SEC for their actions."
Teresa F. Lindeman: email@example.com or at 412-263-2018. First Published October 10, 2013 8:00 PM