U.S. judge throws out SEC lawsuit over 'suspicious' Onyx trading

Reuters

By Nate Raymond

NEW YORK, Nov 22 (Reuters) - Two traders have won thedismissal of a U.S. Securities and Exchange Commission lawsuitaccusing them of insider trading in Onyx Pharmaceuticals Inc asthe company considered a takeover bid from rival Amgen Inc.

The decision by U.S. District Judge Paul Oetken inManhattan, made public Friday, marked a setback in what hasbecome an increasingly common tactic by the SEC of freezing theaccounts of unknown traders engaged in suspicious tradingactivities.

The SEC filed its lawsuit against unknown traders on July 3,targeting three trades between June 26 and 28 that thecommission called "suspicious."

Soon afterward, the agency won orders freezing about $4.6million held in accounts at Citigroup Global Markets Inc andBarclays Capital Inc holding $4.6 million made on the trades.

Dhia Jafar and Omar Nabulsi, both of Dubai, stepped out of anonymity on July 23, saying they made the trades in theCitigroup account. They denied wrongdoing and requested thelawsuit be dismissed.

Oetken granted their motion to dismiss, saying the factsalleged by the SEC "are insufficient to support a reasonableinference of insider trading" in advance of news of Amgen's $10billion offer.

"There is no indication that the SEC knows whether materialnonpublic information was tipped, who did the tipping, or whoreceived the tip," Oetken said.

According to the SEC, the trades started the day Onyx'sboard of directors voted to reject an unsolicited offer fromAmgen. News of Amgen's offer broke two days later, and Onyxannounced the board had rejected the offer on June 30.

Almost a month later, Onyx agreed to be bought by Amgen forabout $10.4 billion.

'ALL BELIEF AND NO INFORMATION'

In his ruling, Oetken said many of the SEC's allegationswere "all belief and no information" and the facts did notsupport an inference of insider trading.

The size and riskiness of the trades also did not supportthe SEC's argument, the judge said. And the SEC had notidentified anyone who might have been the tipper, Oetken wrote.

"Even if there was a tip - which it is not reasonable toinfer from these facts alone - the SEC's allegations do notsupport a reasonable inference that the tip was in violation ofa fiduciary duty, much less that the Defendants knew or shouldhave known about the violation," Oetken wrote.

The judge, however, said he would permit the SEC to file anamended complaint and left a modified freeze order in place forthat period.

If the SEC does not file an amended complaint within 30days, Oetkin said he will lift the freeze order. The judgemodified the order to cover only $2.53 million in the Citigroupaccount, the amount Jafar and Nabulsi say they made on thetrades at issue.

Kevin Callahan, a spokesman for the SEC, said the agency was"pleased the freeze is still in place for 30 days and we'rereviewing the decision."

Patrick Smith, a lawyer who represented Jafar and Nabulsi,said the ruling would make it harder for the SEC to pursue casesif once-unknown traders step forward.

"If all the SEC has is the fact of the trade which theyargue appears suspicious, they're not going to have adequatebasis to allege insider trading," he said. "They're going toneed to have something more."

The ruling came in one of several lawsuits the SEC haspursued in recent years seeking asset freezes in cases where itsuspects insider trading but cannot immediately identify theindividuals responsible.

In February, the SEC filed a similar lawsuit to freezeassets after detecting suspicious options trading before anannouncement that Berkshire Hathaway Inc and 3G Capital plannedto acquire ketchup-maker H.J. Heinz.

Last month, two brothers from Brazil, Rodrigo Terpins andMichel Terpins, agreed to pay $5 million to settle that lawsuit.

The case is SEC v. One or More Unknown Traders in theSecurities of Onyx Pharmaceuticals Inc, U.S. District Court,Southern District of New York, No. 13-04645.

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