Kohlberg Kravis Roberts and TPG’s bid for US energy company TXU has been plunged into scandal as one of the energy bankers working on the deal for Credit Suisse Group was arrested yesterday. He was charged with 25 counts of securities fraud and one count of conspiracy.
A number of media sources reported energy banker Hafiz Naseem, from the Swiss bank’s New York office had allegedly been involved in insider trading in deals on which Credit Suisse advised including the TXU buyout.
US prosecutors alleged Naseem’s scheme netted $7.5 million (€5.5 million). A recipient of Naseem’s information was a Pakistani banker who provided the information to high profile Pakistani financial executives, the Security and Exchange Commission also said in a civil complaint this week. In the criminal case prosecutors referred to this co-conspirator as “CC-1”.
This banker is alleged to have received $5 million by buying 6,700 TXU call option contracts with March 2007 expiration dates. Using these options he was able to buy shares in TXU which went up $7.91 to $67.93 on Feb. 26 after the deal was announced.
Naseem could be sentenced to 20 years in prison and $5 million in fines for each count of securities fraud. The charge of conspiracy to commit securities fraud also carries a maximum sentence of 5 years and a $250,000 fine or, if the sum is greater, twice the conspirator’s profit. According to the New York Times Credit Suisse is in the process of firing Naseem.
Other suspicious dealing activity prior to private equity deals has been identified by market analysts. According to Bloomberg trading in the options of US electronic payments business First Data leapt by 650 percent in late March three days before KKR’s $29 billion bid was agreed.