Securities Law Updates | New Releases/No Action Letters
September 20, 2012
New York District Court Freezes Assets of Insider Trader in Burger King Stock
SEC v. Waldyr Da Silva Prado Neto
SEC No. 2012-195, Case No. 12CW 7094, U.S. District Court for the Southern District of New York, 9/20/2012
The Securities and Exchange Commission today obtained an emergency court order to freeze the assets of a stockbroker who used nonpublic information from a customer and engaged in insider trading ahead of Burger King’s announcement that it was being acquired by a New York private equity firm.
The SEC alleges that Waldyr Da Silva Prado Neto, a citizen of Brazil who was working for Wells Fargo in Miami, learned about the impending acquisition from a brokerage customer who invested at least $50 million in a fund managed by private equity firm 3G Capital Partners Ltd. and used to acquire Burger King in 2010. Prado misused the confidential information to illegally trade in Burger King stock for $175,000 in illicit profits, and he tipped others living in Brazil and elsewhere who also traded on the nonpublic information.
The SEC obtained the asset freeze in U.S. District Court for the Southern District of New York. The agency took the emergency action to prevent Prado from transferring his assets outside of U.S. jurisdiction. Prado recently abandoned his most current job at Morgan Stanley Smith Barney, put his Miami home up for sale, and began transferring all of his assets out of the country.
“Prado’s emails and other communications may have been sent from Brazil and written in Portuguese, but our commitment to prosecute illegal insider trading on U.S. markets knows no geographic or language barrier,” said Sanjay Wadhwa, Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit and Associate Director of the New York Regional Office. “Prado may have fled the country to evade justice, but our action today ensures that he will have to appear in a U.S. court if he wants his assets unfrozen.”
According to the SEC’s complaint, Prado’s insider trading in Burger King stock occurred from May 17 to Sept. 1, 2010. At the time, Prado was the representative on the account used by the customer to transfer his investment to 3G Capital.
The customer had been with Prado for more than 10 years and often shared his confidential financial information with the understanding that it was to remain confidential. Prado had repeated contact with the customer by phone and e-mail as well as in person in Brazil during the time period that Prado traded Burger King securities.
The SEC alleges that Prado began his illegal trading while on a business trip to Brazil, during which he sent an e-mail to a friend that – translated from Portuguese – read, “I’m in Brazil with information that cannot be sent by email. You can’t miss it….” Prado later told his friend on a phone call that night that he heard 3G Capital was going to take Burger King private. The friend, a hedge fund manager in Miami, warned Prado that he should not trade on this information and should not encourage any of his customers to trade either.
According to the SEC’s complaint, Prado went on to tip at least four of his customers who eventually traded in Burger King stock based on nonpublic information about the impending acquisition. For example, just minutes after Prado sent the May 17 e-mail to his friend in Miami, he sent an e-mail to one of those customers which, again translated from Portuguese, read, “ … if you are around call me at the hotel … I have some info…You have to hear this.” A 10-minute phone conversation followed, and the customer purchased out-of-the-money Burger King call options during the next two days. In August 2010 Prado was on another business trip to Brazil, the same customer sent Prado an e-mail which translated to, “s the sandwich deal going to happen?” Prado replied, “Vai sim,” which means, “Yes it’s going to happen.” He continued, “[e]verything is 100% under control. I was embarrassed to ask about timing. The last ‘vol’ got in the way.” Following these e-mails, the customer – identified as Tippee A in the SEC’s complaint – made additional purchases in Burger King call options. The customer’s total insider trading profits amounted to more than $1.68 million.
The SEC’s complaint against Prado seeks a permanent injunction from violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, disgorgement with prejudgment interest and monetary penalties.
The SEC’s investigation, which is continuing, has been conducted by Megan Bergstrom, David Brown, and Diana Tani in Los Angeles, and Charles D. Riely in New York, who are members of the SEC Enforcement Division’s Market Abuse Unit. The investigation was supervised by Unit Chief Daniel M. Hawke and Deputy Chief Sanjay Wadhwa. The SEC appreciates the assistance of the Comissão de Valores Mobliliários (Securities and Exchange Commission of Brazil), Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority (FINRA).
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