While it is not news that the SEC has been formally investigating unusual trading patterns prior to the announcement of the Schering-Plough into Merck transaction, (circa March of 2009), the scope of that investigation was largely unknown — until now. A fine piece of investigative journalism is evinced here, by Susan Pulliam, Michael Rothfeld, Jenny Strasburg and Gregory Zuckerman — for the WSJ, tonight. This may well turn out to be largest insider trading bust in history.
Apparently, Schering-Plough-Merck was only a small part of the much larger puzzle (and thus far, no one at either company is known to be a target in this investigation). Apparently, wide rings of dishonest industry insiders, traders and hedge fund managers were swapping information — allegedly for illicit profits. That is the SEC’s theory — or so it would seem. Do go read the whole Wall Street Journal article, but here is the bit most relevant to Merck, and legacy Schering-Plough:
. . . .The SEC has been investigating potential leaks on takeover deals going back to at least 2007 amid an explosion of deals leading up to the financial crisis. The SEC sent subpoenas last fall to more than 30 hedge funds and other investors.
Some subpoenas were related to trading in Schering-Plough Corp. stock before its takeover by Merck & Co. in 2009, say people familiar with the matter. Schering-Plough stock rose 8% the trading day before the deal plan was announced and 14% the day of the announcement. . . .
In subpoenas, the SEC has sought information about communications — related to Schering-Plough and other deals — with Ziff Brothers, Jana Partners LLC, TPG-Axon Capital Management, Prudential Financial Inc.’s Jennison Associates asset-management unit, UBS AG’s UBS Financial Services Inc. unit, and Deutsche Bank AG, according to subpoenas and the people familiar with the matter.
Representatives of Ziff Brothers, Jana, TPG-Axon, Jennison, UBS and Deutsche Bank declined to comment.
Among hedge-fund managers whose trading in takeovers is a focus of the criminal probe is Todd Deutsch, a top Wall Street trader who left Galleon Group in 2008 to go out on his own, the people close to the situation say. A spokesman for Mr. Deutsch, who has specialized in health-care and technology stocks, declined to comment. . . .
Were I a suspicious man, I might wonder whether the abrupt, and almost completely inexplicable, departure of a certain ex-Schering-Plough officer, from her/his recent C Level executive suite, in an unrelated industry, was occasioned by a need to devote more time to responding to the SEC’s queries, in this wide-ranging insider trading matter. But I am not. We will keep you informed.