The U.S. Securities and Exchange Commission on Tuesday charged a former high ranking official at Madrid-based Banco Santander S.A. and a former judge in Spain with insider trading based on non-public information about a proposed takeover of
Potash Corp. of Saskatchewan Inc. (
TSX: T.POT,
Stock Forum) (
NYSE: POT,
Stock Forum).
The SEC alleges that Cedric Canas Maillard, who served as an executive advisor to Banco Santander’s CEO, learned confidentially that the investment bank had been asked by
BHP Billiton Ltd. (
NYSE: BHP,
Stock Forum) to advise and help underwrite its proposed acquisition of Potash Corp.
Maillard is a 40-year-old Spanish citizen who lives in Madrid and has an MBA from Harvard Business School, according to court documents. He also has a U.S. social security number and owns apartments in New York, and Miami.
In the days leading up to a public announcement of BHP’s bid, Canas allegedly purchased Potash contracts-for-difference (CFDs), which were highly leveraged securities not traded in the U.S., but based on the price of U.S. exchange-listed Potash stock.
The CFD’s mirrored the movement and pricing of that stock.
Canas allegedly tipped his close personal friend Julio Marin Ugedo about the potential acquisition and advised him to purchase Potash stock. Marin is also a Spanish citizen, who lives in Badajoz, Spain.
Canas and Marin sold their Potash securities after the public announcement for illicit profits of nearly $1 million combined.
“Canas used his position as an insider at an investment bank to trade CFDs based on confidential information about BHP’s acquisition of Potash,’’ said Daniel Hawke, Chief of the SEC’s Market Abuse Unit.
“To those who think they can mask their insider trading by trading CFDs rather than the underlying equity security, this case demonstrates our resolve to detect such trading and hold them accountable for violating the federal securities laws.’’
The SEC’s enforcement action against Canas and Marin arises from its continuing investigation into suspicious trading ahead of the August 17, 2010 public announcement of BHP’s acquisition bid, which ultimately proved unsuccessful when Canada blocked the deal, saying it did not provide a net benefit to the country.
A former Banco Santander analyst agreed to pay more than $625,000 to settle insider trading charges by the SEC.
According to the SEC’s complaint against Canas and Marin, filed in the U.S. District Court for the Southern District of New York, Australia-based BHP made the unsolicited $38.6 billion offer to purchase all of the shares of Saskatchewan-based Potash for $130 per share in cash.
On a number of occasions between August 5 and August 17, 2010, Banco Santander’s CEO and at least three other bank executives discussed the status of BHP’s proposal with Canas.
On August 9, one executive informed Canas that the $10.5 billion financing commitment requested by BHP had been approved by Banco Santander’s executive committee.
On August 11, Canas attended a lunch meeting during which bank executives discussed the Potash acquisition, including timing of the deal.
The SEC alleges that Canas purchase 30,000 Potash CFDs from August 9, to August 13, 2010 based on material, non-public information he learned from BHP’s offer to acquire Potash.
He allegedly bought the CFDs through an Internaxx, S.A, brokerage account. Internaxx is a TD Ameritrade affiliate that is based in Luxembourg.
An equity CFD is an agreement between two parties to exchange the difference in value of an underlying stock between the time the contract is opened and the time at which it is closed. If the stock price increases, the seller pays the difference to the buyer. However, if the share price declines, the buyer must pay the seller.
Canas allegedly liquidated his entire CFD position in Potash following the August 17 public announcement for an illicit profit of $917,239.44.
Canas also communicated frequently with Marin that month, and Marin has admitted that he and Canas discussed investing in Potash prior to his purchase of 1,393 shares of Potash common stock through two Spain-based brokerage accounts at predecessor company of Openbank S.A., and Kutxabank.
By trading Potash stock based on material, non-public information, Marin generated net trading profits of $43,566 (a 28.47% return) in just one week, the SEC alleges.
The SEC’s complaint alleges that Canas and Marin violated sections of the Securities Exchange Act of 1934.
It seeks disgorgement of ill-gotten gains with prejudgement interest, financial penalties, and orders of permanent injunction against Canas and Marin.