Investments in GCI options valued at $50,000 on April 3 of this year soared to more than $1 million a day later, a classic get-rich-quick story.
But before you start thinking of getting in on that action, just know that the Securities and Exchange Commission has charged that a stockbroker and two others in Beirut, Lebanon, relied on insider information and should forfeit the "illicit trading profits" from that one-day wonder.
We don't know yet how the secret leaked that the stock of the Alaska company would jump — or if the leak originated with anyone in Alaska — but the SEC believes the traders dealt with "a person or persons who tipped such information with the expectation of receiving a benefit."
After Liberty Interactive announced plans in April to acquire the Alaska company in a $1.1 billion deal, GCI's stock price climbed 62 percent in one day.
Two weeks before the deal became public, the three Beirut men invested small amounts in purchasing short-term options, giving them the right to buy thousands of shares at set prices in the $22-$25 range in the near future. They exercised those options on April 4, after the stock shot up to $33.39.
Several factors attracted the attention of the SEC, which reported "highly suspicious" trades linked to investment accounts in Lebanon and London. The buyers did not hedge their bets, suggesting they saw no chance of a drop in the stock price. Plus, they set a purchase price that was higher than the going rate for GCI in mid-March, another sign that something was amiss.
The SEC said it has still not identified the parties that bought options for $11,560 through a London account and turned a one-day profit of $163,381 from GCI options.
It wasn't until the July 13 court filing in New York federal court that the SEC fingered a stock broker in Beirut, Omar El-Achkar, who headed the trading desk at Aksys Capital SAL from 2007 until last December. He traded securities and provided investment advice to clients in his former job.
The agency charged that El-Achkar used his father's account at Aksys Capital SAL to make the buy. He paid $37,870 on March 20 and March 22 for options that he sold on April 4 for a profit of $768,905. The two other Beirut men paid a total of about $2,400 in options they sold on April 4 for nearly $25,000.
Numerous people in various companies knew about the Liberty-GCI deal by mid-March, but the information was supposed to be kept confidential.
Liberty approached GCI on Dec. 2 about acquiring the company and the two companies signed a nondisclosure agreement six days later. On Jan. 21, Liberty made a written offer to GCI CEO Ron Duncan, and confidential discussions continued until early April.
GCI retained a financial services firm on March 11 and secret negotiations continued until the end of the month. The SEC said "select GCI employees were informed about Liberty's proposal on a need-to-know basis."
The essence of the complaint is that El-Achkar learned in advance that Liberty was going to announce that it would buy GCI at a higher price per share than the $20 GCI had been selling for in recent months.
By buying options with the right to purchase GCI at a low price, El-Achkar and two others positioned themselves for a giant gain on April 4 when the Liberty-GCI agreement became public.
The others named in the complaint are Halloun Malek Kharrat and Al Daher Ahmad Yaacoub, both of Beirut.
El-Achkar is no novice in buying options. The SEC said that he earned $494,455 in March by buying options in Mobileye, an Israeli company that Intel later announced plans to buy for $15 billion. He has not been charged with insider trading in that case. The SEC said he "successfully traded in advance" of two other acquisitions from February to April 4.
Columnist Dermot Cole can be reached at dermot@alaskadispatch.com.
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