The Securities and Exchange Commission announced it has obtained an emergency court order to freeze the assets of two Virginia-based traders who gleaned nearly $1 million in trading profits in advance of the March 13, 2017 announcement that Intel Corp. (NASDAQ: INTC) had agreed to acquire Israel-based Mobileye, NV (NYSE: MBLY). This is the SEC's second civil action in connection with the Mobileye announcement.
The SEC's emergency action to freeze the proceeds of the traders' allegedly highly suspicious transactions ensures that the potentially illegal profits cannot be removed from the accounts while the agency's investigation of the trading continues in both cases.
According to the SEC's complaint filed in federal court in New York, before market opening on Monday, March 13, Intel announced that it had agreed to acquire Mobileye through a tender offer for approximately $15.3 billion, or $63.54 per share. The allegedly announced purchase price was a 34.4 percent premium over Mobileye's closing price on Friday, March 10, of $47.27 per share. After the announcement, Mobileye opened at its high for the day, $61.51, and closed at $60.62 per share, a 28 percent increase over its March 10 closing price.
The SEC alleges that Lawrence F. Cluff, Jr. and Roger E. Shaoul were in possession of material nonpublic information about the impending acquisition when they purchased Mobileye securities. All of the suspicious trading allegedly occurred in two accounts held in Cluff's name. Cluff had an existing account that was dormant since 2011 until he purchased Mobileye stock on January 30, 2017. Cluff allegedly also opened a second account on January 29, which has only traded in Mobileye securities. On February 1, the complaint alleges that Cluff transferred $161,500 to the new account and used essentially all of those funds to purchase 3,782 Mobileye shares at a cost of $161,421.68. On that same day, he allegedly transferred $5,000 to the old account and used those funds, plus margin, to purchase Mobileye stock over the next two days.
The complaint alleges that on February 28, an additional $28,000 was wired to Cluff's new account. Around the time of this transfer, Shaoul allegedly appears to have impersonated Cluff in order to start issuing trading instructions to accumulate more Mobileye call options. On March 8, Cluff's new account allegedly sold 425 Mobileye shares for $19,920.43, and then between March 8 and March 10, the account purchased approximately $20,000 in additional Mobileye call options expiring March 17 and March 24 with strike prices ranging from $50 to $55. As of close of trading on Friday, March 10, the last trading day prior to the announcement, Cluff's new account allegedly held 3,414 Mobileye shares and 1,209 Mobileye call options with strike prices between $50 and $55. Mobileye's shares had not closed above $50.00 in the prior 17 months. After the announcement of the acquisition, Cluff sold 862 Mobileye call options for proceeds of $617,563.85 and his accounts have unrealized gains of approximately $335,000, representing a total profit of approximately $925,000.
The emergency court order obtained by the SEC freezes the traders' assets and prohibits the traders from destroying any evidence. The SEC's complaint charges the traders with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. In addition to the emergency relief, the SEC seeks a final judgment ordering the traders to disgorge their allegedly ill-gotten gains with interest, pay civil penalties, and be permanently enjoined from future violations.