Leap Wireless trades scrutinized

Call options rose prior to AT& T deal

Options trades in telecom firm Leap Wireless International are under investigation after a prominent market maker complained about “suspicious” activity shortly before last month’s announcement of a takeover deal.

The review by the Options Regulatory Surveillance Authority focuses on a surge in call options before AT& T announced a $ 1.19 billion cash bid for the smaller wireless firm on July 12.

Call options give purchasers the right to buy stock shares at a set price by a specific date in the future. Costing a fraction of a firm’s stock share price, they’re often bought when a buyer believes the price will rise, as Leap Wireless shares did after the takeover announcement.

“Did someone know something early in Leap Wireless?” asked Jon Najarian, co- founder of Option Monster, a provider of options- trading ideas, in a written commentary for TheStreet. com. “The question now is whether someone will end up in prison for insider trading.”

The episode represents the latest example in a series of questionably well- timed bullish trading bets ahead of market- moving news. The cases have prompted renewed questions about financial market fairness.

Four days after the Leap announcement, Connecticut- based Timber Hill filed a complaint asking the market overseer to “investigate suspicious option trading activity in various option classes of Leap Wireless.” Timber Hill also sought a review by the markets regulation department of Nasdaq’s PHLX options exchange.

“We, as market makers … sold these calls,” Thomas Peterffy, who heads Timber Hill and an affiliated group of brokerages, said in an interview. “When the news came out, we had an immediate loss of $ 1.5 mil-

Regulators are investigating a surge in demand for Leap Wireless call options over the five days preceding AT& T’s July 12 announcement that it would buy the company. Call options are bought when buyers believe the price of a stock will rise. Number of call and put contracts purchased: