The U.S. Securities and Exchange Commission (SEC) announced its investigation concerning 'highly profitable and suspicious' purchases of call options for Martek Biosciences stock done in the days before Royal DSM announced it would buy all outstanding Martek shares at a 35% premium. The SEC investigation follows an investigation for investors in Martek Biosciences Corp. (NASDAQ:MATK) questioning whether the offer and the sale process are unfair to MATK investors.
The investigation for MATK investors by a law firm concerns whether certain officers and directors at Martek Biosciences Corp. breached their fiduciary duty owed to the shareholders of Martek Biosciences Corp. (NASDAQ:MATK) arising out of their attempt to sell Martek Biosciences Corp.
On Tuesday, Dec. 21. 2010, Martek Biosciences Corporation and Royal DSM N.V. announce that they have entered into an agreement under which Royal DSM N.V. will acquire all the outstanding shares of common stock of Martek Biosciences Corporation for US$31.50 in cash per share for total consideration of US$1.087billion. Martek Biosciences Corporation said the offered price represents a premium of 35% to Martek Biosciences Corp's closing share price of US$23.36 on December 20, 2010, and 39% to the volume weighted average closing price of Martek Biosciences common stock over the last 90 days.
Shares of Martek Biosciences (MATK) in the open market went from $23.51 the day before the announcement to $32.32 per MATK share after the takeover news.
Shortly thereafter the SEC filed a complaint alleging that thus far unknown purchasers engaged in illegal insider trading in the days preceding the December 21, 2010 takeover announcement. The SEC alleges that through illegal insider trading the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The SEC said in a press release that between December 10, 2010 and December 15, 2010, so far unidentified purchasers bought 2,615 Martek Biosciences Corporation call option contracts through a UBS account.
Those Call option contacts comprised over 90% of the volume for these contracts on those days. The complaint further alleges that, after the acquisition announcement the value of those call options rose dramatically during the day. In one instance, the options increased 2,500% in value. The SEC estimates that the unidentified purchasers are in a position to realize total profits of approximately $1.2 million from the sale of the call options.
On Dec. 22, the U.S. District Court for the Southern District of New York entered a temporary restraining order freezing assets and trading proceeds of certain unknown purchasers of the securities of Martek Biosciences Corporation. The SEC further said, the temporary restraining order requires the unknown purchasers to identify themselves, imposes an expedited discovery schedule, and prohibits the defendants from destroying documents.
The investigation for investors in MATK concerns whether Martek Biosciences Corp. and certain of its officers and directors breached their fiduciary duties owed to Martek Biosciences Corp. (NASDAQ:MATK) investors by failing to undertake an adequate and fair sales process to obtain fair consideration for all shareholders of Martek Biosciences Corp. (NASDAQ:MATK) and by agreeing to an offer that undervalues Martek Biosciences Corp. Earlier this month, Martek Biosciences reported a 36 percent increase in revenues, topping analysts' average estimates. Thus Martek Biosciences Corp. has performed well for its shareholders. Martek Biosciences Corp. 12month Total Revenue went from $306.81million reported on October 31, 2007 to $450.02million reported on October 31, 2010.