Merck and the SEC: No Joke

Includes: MRK, SGP
by: Derek Lowe

And I thought that I was kidding, at least a bit, in my post where I warned some of the folks buying into Schering-Plough (SGP) that they might be hearing from the SEC. Well, maybe not - whenever a deal like this goes through, the first place they look is in the options market:

Some lucky option players appeared to have reaped a windfall with Schering-Plough call options rocketing after Merck (NYSE:MRK) on Monday announced a proposed $41.1 billion takeover of the drugmaker.

. . .a burst of activity in the stock's call options last Tuesday and again on Friday may be too much of a coincidence to overlook and prompted some option traders to ask if inside word of the pending deal reached some investors.

"Our examination of the data suggests a high degree of likelihood that someone did indeed place what I will be politically correct and call nicely timed trades," said Jon Najarian, a founder of Web information site, in an email to Reuters.

Good luck explaining these, is all I can say. Telling them how lucky you felt that day won't make the folks from the enforcement division go away. As a lawyer in this business once said to me at a meeting, "I have to make sure that no one in this company trades our stock on material information. And material information is defined as something that makes you think about trading the stock."