By Sarah N. Lynch
WASHINGTON (Reuters) - A Thailand-based trader will pay $5.2 million to settle civil charges that he traded on nonpublic information ahead of a public announcement about the proposed acquisition of Smithfield Foods Inc by China-based Shuanghui International Holdings, U.S. regulators said.
The Securities and Exchange Commission said the settlement with Badin Rungruangnavarat had been approved by U.S. District Judge Matthew Kennelly for the Northern District in Illinois.
Badin neither admitted nor denied the charges. An attorney for Badin could not be immediately reached for comment.
The settlement comes after the SEC in early June obtained an asset freeze on his brokerage account.
The asset freeze was prompted by concerns that Badin had reaped more than $3 million in illegal profits by trading Smithfield out-of-the-money call options and single-stock futures before Shuanghui International Holdings, China's largest meat processor, announced plans to purchase U.S. pork producer Smithfield for $4.7 billion.
"Our quick action in June to stop Badin's insider trading profits from leaving the U.S. made this multi-million dollar settlement possible," said Daniel Hawke, head of the market abuse unit in the SEC's enforcement division.
The SEC said it believed that Badin received the tip from a Facebook friend. The friend was an associate director at a Thai investment bank that was advising a Shuanghui rival, Charoen Pokphand Foods Plc, which also explored a bid for Smithfield, according to the regulator.
The U.S. government is unlikely to block Shuanghui's deal to buy Smithfield on national security grounds, a person familiar with the matter has told Reuters.
The incidence of very profitable options trading ahead of major takeovers is not uncommon.
A study for Reuters by options research firm Schaeffer's Investment Research looked at a sampling of announcements over 14 months and found 41 examples where new call options positions had risen by at least 50 percent in the five days before the news broke.
Of the $5.2 million that Badin will pay to settle the case, $3.2 million represents his disgorgement of ill-gotten gains and the remaining $2 million will go toward paying a penalty.
(Reporting by Sarah N. Lynch; Additional reporting by Jonathan Stempel in New York; Editing by Bernard Orr and Tim Dobbyn)