Bailout

Insider trading datapoint of the day

By Felix Salmon

It’s barely credible, but it seems to be true:

On August 12,13, and 16, 2010, Defendant Juan Jose Fernandez Garcia (”Garcia”), a Madrid, Spain resident and the Head of European Equity Derivatives at Banco Santander, S.A., an advisor to BHP in connection with its tender offer, purchased a total of 282 call options for approximately $13,669, all of which he sold on August 17, 2010 for a profit of approximately $576,000.

That’s a 4,000% profit in the space of three business days. What on earth did he think he was doing? It’s all pretty obvious stuff: on August 12, for instance, Garcia bought 32 call options on POT with a strike of $130 and which were going to expire on August 21. On that day, POT was trading between $106.56 and $112.88 per share, and the call options cost him the grand sum of 2 cents apiece.

When POT opened on August 17 at $143.11 per share, Garcia sold his options. I’m not sure what the price was on the $130 calls, but it was probably somewhere in the region of $13 each. A nice return.

Santander has yet to comment on this case, but it’s crazy that a senior member of their equity-derivatives team would engage in something as obvious as this, using his own personal account in his own name. I suspect there’s another shoe to drop here. But there’s no doubt that this is a massive egg on Santander’s face, not least because the Chinese walls there clearly failed in the worse possible way. I’ll be fascinated to see how this case plays out: I’m quite sure there’s a very juicy story behind the scenes somewhere.

Full post as published by Macroprudential on August 25, 2010 (boomark / email).