The US market watchdog has charged a former Banco Santander executive and an ex-Spanish judge for insider trading in connection with a proposed takeover of Potash Corp by BHP Billiton in 2010.
The Securities and Exchange Commission (SEC) is seeking to recover about $1m of alleged illegal profit, earned through insider trading by Cedric Cañas Maillard, a former adviser to Banco Santander's chief executive, and former judge Julio Marín Ugedo.
The SEC alleges that Cañas had prior knowledge about Anglo-Australian mining giant BHP Billiton's bid for fertilizer company Potash. Santander was helping BHP to prepare a bid for the company based in Saskatoon, Canada.
Subsequently, Cañas bought 30,000 Potash contracts-for-difference (CFDs), which were highly leveraged securities not traded in the US but based on the price of US exchange-listed Potash stock. He also shared the information to his close friend Marín, who bought 1,393 Potash shares.
The watchdog said that Marín has admitted to discussing with Cañas before making the purchase.
On 17 August, 2010, Potash rejected an unsolicited $38.6bn takeover offer from BHP, but the news helped Potash's shares to surge more than 25% that day.
Cañas and Marín quickly sold the purchased securities, gaining $917,239 and $43,566, respectively, according to the SEC.
It seeks to recover those sums and impose civil fines on the accused along with permanent injunction from trading.
"Cañas used his position as an insider at an investment bank to trade CFDs based on confidential information about BHP's acquisition of Potash," said Daniel Hawke, chief of the SEC's market abuse unit.
"To those who think they can mask their insider trading by trading CFDs rather than the underlying equity security, this case demonstrates our resolve to detect such trading and hold them accountable for violating the federal securities laws."
Cañas left his job at Santander in 2011 and now lives in Madrid, while Marín lives in Badajoz, Spain.
Investigation Into Potash Deal
The lawsuit, filed in New York, is the latest case where the SEC has charged individuals outside the US for insider trading.
The SEC move comes after its investigation into suspicious Potash trading ahead of the public announcement of BHP's bid.
Following the investigation, Juan Jose Fernandez Garcia, a former Banco Santander analyst, has earlier agreed to pay more than $625,000 to settle insider trading charges by the SEC relating to Potash. He did not admit or deny wrongdoing.
A separate case against a Spanish citizen in connection with the same deal was thrown out by a US judge for lack of evidence.
Canada had blocked the Potash takeover saying that it would not provide a "net benefit" to the country.