Suspicious trading before HP's $2.7 billion 3Com bid; SEC closed for holiday

Somebody get the SEC on the phone, stat! Oh wait, they were closed Wednesday for Veterans Day.

Suspicious activity in the options market for 3Com (COMS) raised concerns late Wednesday that news of computer and printer maker Hewlett-Packard's (HPQ) $2.7 billion purchase of the networking company was leaked before the deal was officially announced, according to multiple reports. If this were the case, the activity could be a possible violation of securities law against insider trading.

There was an abnormally massive spike in activity for November and December call options, which would give the holder the right to buy 3Com shares at $5. The stock was up 35% in after-hours trading to $7.65, meaning that someone who exercised the option could have realized a huge paper gain in a matter of hours.

3Com is among the companies that has come up in the probe of hedge fund Galleon Group, whose formerly high-flying founder Raj Rajaratnam was just indicted for orchestrating an insider-trading ring. News of the pending announcement would be the very definition of "material non-public information."

"Since I do not believe in coincidences on Wall Street, I would bet that these unusual call option trades will spark an investigation," OptionMonster co-founder Jon Najarian told Reuters.

Before the deal was announced Wednesday, 3Com options activity jumped to 17 times the normal level. The largest transaction was apparently an order of 1,900 November call options that took place around noon EST on the Chicago Board Options Exchange, the wire reported, according to Trade Alert.

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Comments

[Amalek]

I have been involved in corporate deals like this. If you have access to inside information you will automatically be checked to determine if you traded in the stock before the announcement. The exchanges do it based on a list of insiders provided, which includes all the lawyers and accountants who know. They also check all large trades. You simply are not going to get away with this.

It is irrelevant the SEC was closed for Veteran's day. These cases take months to document, but rest assured, you can't get away with this.