SEC Files Suit Over ‘Suspicious’ Buys Before Acquisitions

By Daniel | July 25, 2008

Last Update: 7/25/2008 1:18:39 PM

By Chad Bray
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–The U.S. Securities and Exchange Commission filed a civil
insider-trading lawsuit Friday over “highly profitable and highly suspicious”
purchases of call options in DRS Technologies Inc. (DRS) and American Power
Conversion Corp. prior to announcements they were being acquired.

The lawsuit, filed in U.S. District Court in Manhattan, alleges one or more
unknown purchasers made “well-timed purchases” of call options in the two
companies shortly before public announcements related to their acquisitions over
the past two years.

“In both cases, there was no public information available concerning the
acquisitions before unknown purchaser purchased the call options,” the SEC said.

The purchases, which resulted in $3.3 million in profits, were made through an
account in Zurich, the SEC said.

In one instance, the unknown purchaser allegedly bought 2,830 out-of-the money
options in American Power Conversion Corp. in the weeks before French
electrical-equipment maker Schneider Electric SA (12197.FR) publicly announced in
October 2006 it planned to acquire the U.S. critical-power specialist for $6.1
billion in cash, the SEC said.

Those options were liquidated for $1.7 million in the days following the
announcement, the regulator said. Schneider completed its purchase of APC in
February 2007.

Earlier this year, the unknown purchaser allegedly bought 1,820 out-of-the money
options in DRS shortly before it was publicly reported that Finmeccanica SpA
(FNC.MI) was in advanced talks to purchase the U.S defense-electronics company,
the SEC said.

Those options were liquidated for $1.6 million on the day that news of the merger
discussions came out in the press, the regulator said.

The Italian aerospace and defense company announced in mid-May that it plans to
acquire DRS for $5.2 billion, or $81 a share, in cash. The consideration includes
$1.2 billion in DRS net debt, following conversion of $345 million in convertible
notes.

In May, the SEC separately filed an emergency civil action and obtained an asset
freeze in the U.S. against Cristian De Colli, a machinery engineer who lives in
Rome. The SEC claims De Colli made $2.1 million from “highly suspicious trading”
in DRS options.

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