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A day before Goldman Sachs announced its $ 2.2 billion purchase of fintech lender GreenSky, someone placed options trades that immediately rose in value, according to market participants, indicating prior knowledge of the agreement.
According to market participants, on September 14, the trader bought 8,000 options that would only pay if GreenSky’s price exceeded $ 10. The options were out of the money – meaning GreenSky was trading well below the strike price – and cost only a nickel per share.
Following the news of the deal, the value of the contracts, each enabling the purchase of 100 shares of GreenSky, skyrocketed. Market sources say the trader made an astounding 3,900% profit in a single day. This means that the $ 40,000 bet would have turned into roughly $ 1.6 million.
Acquisitions are complex transactions that involve teams of bankers, lawyers and other experts who have access to market-driven information. With multiple eyes on a deal, information often leaks. According to a 2014 study by professors at the Stern School of Business in New York City, a quarter of all public company transactions result in some form of insider trading, often out of money in the options market. calls are included. McGill University and University.
Although there have been cases of insider trading involving high-profile criminals, cases in which people have used non-public material information to market, most of the time the activity goes unreported. , according to a 2014 study.
Goldman Sachs and GreenSky declined to comment for this article. The Securities and Exchange Commission and the Financial Industry Regulatory Authority did not immediately respond to calls for comment.
Goldman was his own financial advisor and used Sullivan & Cromwell as legal advisor. JPMorgan Chase and FT Partners advised GreenSky, which also used the law firms Cravath, Swain & Moore and Troutman Pepper Hamilton Sanders.
Greensky’s board also retains its own bankers and lawyers at Piper Sandler and Wilson Soncini Goodrich & Rosati. Banks and law firms declined to comment or did not immediately respond to the messages.
“Nobody is lucky”
The September 14 trades weren’t the only unusually predictable bets made prior to the deal with Goldman.
Options activity for GreenSky is generally muted, with less than 1,000 calls constituting the average daily volume. Bets on the soon-to-pay $ 10 call options have increased over the past two weeks, indicating that it is possible that many traders have been made aware of the matter.
According to John Najarian, a seasoned trader and CNBC contributor, the volume increased from 153 calls on September 7 to 7,175 calls on September 9. As of September 13, two days before the announcement, call volumes reached 12,755. He said contracts were mostly sold on September 15 for profit.
“When we see unusual activity like this, today we think someone had yesterday’s diary,” Nazarian said. “No one is so lucky. Whoever bought those calls would likely have to face the regulators. “
According to a former Wall Street executive with more than four decades of market knowledge, the transactions were so brazen – some calls were due to expire in a few days – that whoever made them must have been inexperienced. There are ways to structure the issues that would make them less obvious to regulators, he said.
“It looks like a 22 year old kid who didn’t know what they were doing,” he said. “But it’s obvious, they had inside information.”
Financial columnist Matt Levine, a former Goldman banker who has written extensively on insider trading, has some guidelines on restricted activities. His first rule (“don’t do that”) comes after a second:
“If you have inside information about an upcoming merger, don’t buy short-term out-of-the-money call options at Target,” Levine wrote in a 2014 column. “SEC will find you!
– CNBC’s Bob Pisani contributed to this report.
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