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SEC Charges Two Traders in Spain with Insider Trading Ahead of BHP Acquisition Bid

On July 30, 2013, the Securities and Exchange Commission 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 acquisition for which the Spanish investment bank was acting as an advisor.

The SEC alleges that Cedric Cañas Maillard, who served as an executive advisor to Banco Santander's CEO, learned confidentially that the investment bank had been asked by one of the world's largest mining companies, BHP Billiton, to advise and help underwrite its proposed acquisition of Potash Corporation, one of the world's largest producers of fertilizer minerals. In the days leading up to a public announcement of BHP's bid, Cañas 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 CFDs mirrored the movement and pricing of that stock. Cañas also tipped his close personal friend Julio Marín Ugedo about the potential acquisition and advised him to purchase Potash stock. Cañas and Marín sold their Potash securities after the public announcement for illicit profits of nearly $1 million combined.

The SEC's enforcement action against Cañas and Marín arises from its continuing investigation into suspicious Potash trading ahead of the Aug. 17, 2010, public announcement of BHP's acquisition bid. 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 Cañas and Marín filed in U.S. District Court for the Southern District of New York, Australia-based BHP made an unsolicited $38.6 billion offer to purchase all of the stock of Canada-based Potash for $130 per share in cash. On a number of occasions between August 5 and August 17, Banco Santander's CEO and at least three other bank executives discussed the status of BHP's proposal with Cañas. On August 9, one executive informed Cañas that the $10.5 billion financing commitment requested by BHP had been approved by Banco Santander's executive committee. On August 11, Cañas attended a lunch meeting during which bank executives discussed the Potash acquisition, including the timing of the deal.

The SEC alleges that Cañas purchased 30,000 Potash CFDs from August 9 to August 13 based on material, non-public information he learned about BHP's offer to acquire Potash. Cañas liquidated his entire CFD position in Potash following the August 17 public announcement for an illicit profit of $917,239.44. Cañas also communicated frequently with Marín that month, and Marín has admitted that he and Cañas discussed investing in Potash prior to his purchase of 1,393 shares of Potash common stock through two Spain-based brokerage accounts. By trading Potash stock based on material, non-public information, Marín generated net trading profits of $43,566 (a 28.47 percent return) in just one week.

The SEC's complaint alleges that Cañas and Marín violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3. The SEC's complaint seeks disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and orders of permanent injunction against Cañas and Marín.

Securities and Exchange Commission v. Cedric Cañas Maillard and Julio Marín Ugedo, Civil Action No. 13-CV-5299 (SDNY) (JPO)

[Source: US Securities and Exchange Commision, Litigation Release Nº 22768, NY, 01Aug13]

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