A Spanish trader won dismissal of a U.S. Securities and Exchange Commission lawsuit accusing him of insider trading in Potash Corp of Saskatchewan Inc. before the Canadian fertilizer company became the target of a $38.6-billion (U.S.) unsolicited takeover.
U.S. District Judge Marvin Aspen in Chicago said the SEC failed to show that Luis Martin Caro Sanchez, 37, had any direct link to an insider, or that his discarded laptop computer contained relevant information about his trades.
The SEC in August, 2010 had accused Mr. Sanchez and former Banco Santander SA research analyst Juan Jose Fernandez Garcia of using material nonpublic information in buying Potash call options before that company revealed that it had received and rejected a $38.6-billion takeover bid by BHP Billiton Ltd.
Santander had advised BHP on the bid, which Potash disclosed on Aug. 17, 2010. Potash shares rose nearly 26 per cent that day. BHP, an Anglo-Australian mining company, abandoned its bid three months later.
According to the regulator, Mr. Sanchez sold his 331 options for a $497,000 profit, for a 1,046 per cent return on his investment of roughly $47,500. The SEC termed the “stunning profits” from the trades “intrinsically suspicious.”
But Mr. Sanchez claimed that he traded on such factors as wheat prices, the energy sector, technical signals and intuition.
Mr. Aspen said the SEC’s case fell short of other, successful insider trading cases based on circumstantial evidence.
“The SEC theorizes that Sanchez was informed of some unidentified information related to the proposed acquisition, at an unidentified time, by an unidentified insider, and traded on this unidentified information,” he wrote. “This chain of speculation does not raise a material issue of fact for consideration by a jury.”
Mr. Aspen also lifted a freeze on Mr. Sanchez’s assets.
SEC spokesman John Nester said the regulator is reviewing the decision. Pravin Rao, a lawyer for Mr. Sanchez, did not immediately return a call seeking comment.
Mr. Garcia, who oversaw European equity derivatives at Santander, in April agreed to pay $626,000 to settle with the SEC. He did not admit wrongdoing. Both defendants lived in Madrid.
The case is SEC v. Garcia et al, U.S. District Court, Northern District of Illinois, No. 10-05268.
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