There were questionable bets before Goldman’s $2.2 billion acquisition of Green Sky

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Market participants said that on the day Goldman Sachs announced its $2.2 billion purchase of fintech lender GreenSky, someone traded the options and the value rose sharply.

According to market participants, on September 14, traders bought 8,000 options that would be rewarded only if the price of GreenSky exceeds $10. The option was priced low and GreenSky was trading well below the strike price, so the cost per share was only 1 nickel. .

After the deal news hit, the value of the deal, which allows everyone to buy 100 shares of GreenSky, skyrocketed. According to market sources, traders made a staggering 3,900% profit in one day. So a $40,000 bet is roughly $1.6 million.

Acquisitions are complex transactions that involve a team of bankers, lawyers and other professionals who have access to the information that drives the market. Information is often leaked due to the large amount of attention given to the transaction. According to a 2014 survey by a professor at New York University’s Stern School of Business, a quarter of all public business transactions lead to some form of insider trading, often out-of-the-box in the options market. Money calls are included. I have. and McGill University.

According to a 2014 survey, there are cases of insider trading that implicate major criminals, but in most cases people access important private information in the market, their activities are not punished.

Goldman Sachs declined to comment on this article. GreenSky rep did not respond to voice message.. The Securities and Exchange Commission and financial industry regulators did not immediately return calls for comment.

Goldman was his financial advisor and he used Sullivan & Cromwell as legal advisor. JPMorgan Chase and FTPArts advise Green Sky, which is also used by the law firms Cravath, Swain & Moore, and Troutman Pepper Hamilton Sanders.

Greensky’s board had its own bankers and lawyers at Piper Sandler and Wilson Sonsini at Goodrich & Rosati. Banks and law firms either declined to comment or did not immediately respond to the message.

“No one is so lucky”

The September 14 transaction was not the only unusually visionary bet made prior to the transaction with Goldman.

GreenSky’s alternate activities are generally muted, and fewer than 1,000 calls make up the average daily volume. However, bets on the soon-to-be-profitable $10 call option have skyrocketed over the past two weeks. This indicates that many traders may be aware of the transaction.

According to veteran trader and CNBC contributor John Najarian, volume increased from 153 calls on September 7 to 7,175 calls by September 9. Call volume had reached 12,755 as of September 13, two days before the announcement. He said the deal was sold on September 15 mainly for profit.

“When we see odd activity like this, we think someone had today’s newspaper yesterday,” Najarian said. “No one is so lucky. Anyone who buys those phones will probably have to face regulatory agencies.”

According to a former Wall Street executive who has more than 40 years of market knowledge, the deal was brave enough that some phones were going to expire in a matter of days, so whoever made the deal you must be inexperienced. He said there was a way to create a condition that would make them less noticeable to regulators.

“It looks like a 22-year-old kid who didn’t know what they were doing,” he said. “But it’s not easy. He had the inside information.”

Matt Levine, a former Goldman banker and financial columnist who writes extensively on insider trading, has some guidelines on prohibited activities. His first rule (“Don’t do that”) is followed by the second rule.

“If you have information about an upcoming merger, don’t buy short-term out-of-the-money call options at Target,” Levine wrote in a 2014 column. “SEC you get it!”

We report on contributions from Bob Pisani to CNBC.

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