Mystery Traders Said to Make Illegal Gains on Fortress Deal

(Bloomberg) -- Unknown traders made more than $3.6 million in illegal profits by investing in shares and derivatives ahead of Softbank Group Corp.’s announcement last month that it would buy Fortress Investment Group LLC, according to U.S. regulators.

The traders are believed to be overseas investors who used accounts outside the U.S., the Securities and Exchange Commission said in a court filing. The SEC said it won an emergency court order freezing the traders’ assets.

The defendants engaged in “highly suspicious trading” that involved buying 950,000 Fortress shares through accounts at Maybank Kim Eng Securities Pte in Singapore, the SEC said in a statement Tuesday. The stock was purchased on Feb. 14 at prices ranging from $5.92 to $6.35 a share. After the market closed that day, Softbank said it planned to acquire Fortress for about $3.3 billion, or $8.08 a share.

The asset freeze “ensures that the profits cannot be removed from the accounts while the agency’s investigation of the trading continues,” the SEC said in its statement.

Derivative Bets

The defendants also include traders who purchased derivatives representing about 1 million shares of Fortress from Feb. 10 through Feb. 14, the SEC said in a filing in federal court in New Jersey. The derivatives were bought from London-based R.J. O’Brien Ltd., according to the regulator.

“We are currently assisting, and extending our full cooperation to the relevant authorities investigating this matter,” Maybank said in a statement. “We wish to clarify that neither Maybank Kim Eng nor any of its employees is a party to this litigation in the United States District Court involving the securities of Fortress Investment Group.”

R.J. O’Brien “is neither a defendant in the complaint nor in any way a target of the investigation,” a spokesperson said in an emailed statement. The firm said it monitors for unusual trading activity and complies with obligations to notify regulators.

Trading in the shares and bullish options of New York-based Fortress jumped to their highest levels in months ahead of the planned buyout. The asset manager’s shares surged 29 percent the day after the deal was announced.

Amplified Wagers

The SEC said the derivatives purchased through R.J. O’Brien were contracts for difference, investment products that are banned in the U.S.

The derivatives allow investors to make amplified wagers on movements for shares, commodities or currencies with a small down payment. The SEC, which has accused traders of using contracts for difference in other insider trading cases, says the derivatives are hard to track because they don’t trade on exchanges.

--With assistance from Pooi Koon Chong

To contact the reporter on this story: Matt Robinson in New York at mrobinson55@bloomberg.net.

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott