The day before Goldman Sachs announced its $2.2 billion purchase of fintech lender GreenSky, someone placed options trades that immediately soared in value, moves that market participants say indicates advance knowledge of the deal.
On Sept. 14, the trader bought 8,000 options that would only pay off if the price of GreenSky rose above $10, according to the market participants. The options were out of the money — meaning that GreenSky was trading well below the strike price — and cost as little as a nickel per share.
After news of the deal hit, the value of the contracts, each allowing for the purchase of 100 shares of GreenSky, skyrocketed. The trader made an astounding 3,900% gain in a single day on contracts expiring Sept. 17, the market sources say. That means a $40,000 bet would have turned into about $1.6 million.
Acquisitions are complicated transactions involving teams of bankers, lawyers and other specialists with access to market-moving information. With that many sets of eyes on a deal, information often leaks. As many as one-quarter of all public company deals result in some form of insider trading, often involving out-of-the-money calls in the options market, according to a 2014 academic study.
Although there have been insider-trading cases ensnaring high-profile perpetrators, instances in which people used material, nonpublic information in the markets, most times the activity goes unpunished, according to the 2014 study by professors at the Stern School of Business at New York University and McGill University.
Goldman Sachs and GreenSky declined to comment for this article. The Securities and Exchange Commission and the Financial Industry Regulatory Authority didn’t immediately return calls seeking comment.
Goldman was its own financial ad