NEW YORK (Reuters) - A former security guard for an H.J. Heinz Co director must face civil insider trading charges arising from the ketchup maker’s 2013 takeover by Brazil’s 3G Capital and Warren Buffett’s Berkshire Hathaway Inc (BRKa.N), a federal judge said on Friday.
U.S. District Judge Laura Taylor Swain in Manhattan rejected Todd Alpert’s request to dismiss a lawsuit filed last March by the U.S. Securities and Exchange Commission.
The SEC had accused Alpert of making $43,873 by illegally trading Heinz stock and options, after the resident of Kingston, Pennsylvania learned of the proposed $23 billion Heinz takeover though his job as a dispatcher for the longtime director.
While the director was not identified in the complaint, Heinz’s board had since 2006 included Nelson Peltz, the activist investor, and public records show a shared historical address for Peltz and Alpert in a northern New York City suburb. Peltz was not accused of wrongdoing.
In court papers, Alpert’s lawyer Robert Knuts argued that the defendant had been employed by a security company, not by the director himself, and owed the director no duty of confidence.
But the judge said Alpert’s employment contract barred him from misusing confidences, while his alleged use of a Jan. 24, 2013 email marked “confidential” that contained the eventual takeover price may show he knew his trading was wrong.
She also noted that the director promptly fired Alpert in July 2015, nearly 2-1/2 years after the takeover was announced, upon learning of the suspicious trading.
“Defendant allegedly traded on confidential information for his own benefit, and did not disclose the trading activity to the board member for more than two years,” Swain wrote. “His alleged undisclosed, self-serving trading on the basis of misappropriated information constitutes the relevant fraud.”
Knuts, in an interview, said: “It is disappointing that the court did not recognize the difference between a contractual relationship and a fiduciary relationship. Mr. Alpert may have made a mistake, but did not engage in intentional fraud.”
The SEC did not immediately respond to a request for comment.
Berkshire and 3G merged Heinz in 2015 with Kraft Foods Group Inc to form Kraft Heinz Co (KHC.O), in which they own a roughly 51 percent stake.
The case is SEC v Alpert, U.S. District Court, Southern District of New York, No. 17-01879.
Reporting by Jonathan Stempel in New York; Editing by Phil Berlowitz