Whispers of Mergers Set Off Suspicious Trading
By GRETCHEN MORGENSON
Published: August 27, 2006
The boom in corporate mergers is creating concern that illicit trading ahead of deal announcements is becoming a systemic problem.
It is against the law to trade on inside information about an imminent merger, of course.
But an analysis of the nation’s biggest mergers over the last 12 months indicates that the securities of 41 percent of the companies receiving buyout bids exhibited abnormal and suspicious trading in the days and weeks before those deals became public. For those who bought shares during these periods of unusual trading, quick gains of as much as 40 percent were possible.
The study, conducted for The New York Times by Measuredmarkets Inc., an analytical research firm in Toronto, scrutinized mergers with a value of $1 billion or more that were announced in the 12-month period that ended in early July. The firm analyzed the price, the total number of shares traded and the number of individual trades in each stock during the weeks leading up to the announcement and looked for large deviations from trading patterns going back as far as four years.
Although any number of factors can lead to spikes in trading, deviations of the kind observed by Measuredmarkets are among the data used by regulators to spot insider trading. Of the 90 big mergers in the period, shares of 37 target companies exhibited abnormal trading in the days and weeks before the deals were disclosed....
http://www.nytimes.com/2006/08/27/business/27deals.html?_r=1&adxnnl=1&oref=slogin&ref=todayspaper&adxnnlx=1156688932-kCMv6uZApix7InMa0n+H1g