Over the past year, the shares of 41 percent of companies that received buyout offers showed abnormal and suspicious trading activity ahead of those deals’ public announcements, The New York Times reported Sunday.
The newspaper asked analytical research firm Measuredmarkets Inc. to study acquisitions valued at $1 billion or more during the 12 months ending in early July. Measuredmarkets provides examples of unusual trading to institutions, individuals and a Canadian regulatory agency.
The company analyzed price, the total number of shares traded and the number of individual trades in each stock during the weeks leading to the announcement, and sought large deviations from trading patterns going back as far as four years, the newspaper said.
Of the 90 large M&A deals announced in that year, the shares of 37 target companies exhibited abnormal trading in the days and weeks before the deals were disclosed, the Times reported.
The newspaper said in the companies that were analyzed no particular news from an industry or sector — nor comments from a newsletter, columnist or blogger — had seemed to be influencing the stocks. The companies were not the subject of widely dispersed merger commentary during the periods of abnormal trading, nor did they make any announcements that would seem to explain the moves, the newspaper reported.
The Times said the Securities and Exchange Commission declined comment on the study but said that it had examined Measuredmarkets method and concluded that self-regulatory organizations like the New York Stock Exchange used more sophisticated techniques to spot insider trading.
“A lot of times the trading may look like something crazy, but you’ve got to have evidence,” said Walter Ricciardi, the SEC’s deputy director of enforcement.
Among the deals studied was Koch Industries Inc.’s $13 billion deal for Georgia-Pacific Corp., announced in November.
Koch’s board voted to approve the bid on Nov. 10. That day, volume in Georgia-Pacific shares rose 37 percent above its average for the year and the number of trades in its stock also rose, according to the Measuredmarkets analysis. The next day, a Friday, Georgia-Pacific volume increased 66 percent above the previous day’s level and company shares rose 5.5 percent over the two days.
The Atlanta-based company made no announcements either day, and the overall market was up 1.3 percent in that same period. The deal was announced on Nov. 13, a Sunday.
A Koch spokeswoman did not return calls for comment, the newspaper said.
The analysis also found suspicious trades around Wachovia Corp.’s May announcement of a deal with Golden West Financial Corp., Dex Media’s acquisition by R.H. Donnelley Corp., Amegy Bancorporation Inc.’s sale to Zions Bancorp; General Electric Co.’s purchase of IDX Systems Corp., and Texas Regional Bancshares Inc.’s buyout by Banco Bilbao Vizcaya Argentaria SA.
Based on the number of enforcement cases filed, the chances of being caught are small, the newspaper reported, noting that insider trading penalties often involve a negotiated settlement in which only the gains are relinquished.