The National Assn. of Securities Dealers is reviewing the unusually heavy trading of Farmers Group shares on June 28 to determine whether insider trading or stock manipulation may have occurred, a spokesman for the regulatory body said Thursday.
"We're looking at the trades and collecting information from the market makers" who specialize in trading Farmers stock, said spokesman Enno Hobbing.
Such reviews are routine when the volume or price of a stock changes sharply in the absence of any public news about the company, he said. The NASD polices the trading of over-the-counter stocks such as Farmers.
Farmers, a Los Angeles-based insurance holding company, has not been contacted by the NASD, spokesman Jeffrey C. Beyer said. Batus Inc., which has waged a six-month battle to take over Farmers, also has not been approached, spokesman Wilson W. Wyatt said.
Last year, sudden changes in a stock's price or volume attracted the attention of NASD computers nearly 20,000 times, Hobbing said. Most of the changes were explained by news developments, he added, but 3,679 unexplained alerts were passed on for reviews such as the current one of trading in Farmers stock.
Mystified by Selling
Just 249 of the reviews produced a hint of possible criminal activity and were turned into full-fledged investigations, Hobbing said.
Traders and analysts for three companies with large speculative holdings in Farmers stock have said they were mystified by the heavy selling on June 28. One analyst suggested that, "the bad news is emanating from Ohio," where state insurance regulators have been holding hearings on the $4.35-billion takeover bid by Batus, the U.S. arm of BAT Industries, a London-based tobacco conglomerate.
But Batus and Farmers spokesmen said after the close of trading on June 28 that the hearings in Columbus had not produced any testimony significantly different from evidence previously presented at similar hearings in Arizona, Oregon and California.
On June 29, however, Farmers requested a 60-day postponement of a Batus lawsuit intended to overturn a decision by California Insurance Commissioner Roxani M. Gillespie to disapprove the takeover deal. That afternoon, after the close of trading, Judge Kurt Lewin granted a 21-day postponement of the hearings.
Both the request and the actual postponement seemed to depress Farmers stock, which fell 25 cents a share on volume of 558,400 shares on June 29 and another 75 cents on 748,000 shares the following day.
Delays tend to drive down the price of acquisition targets such as Farmers, analysts said. They give the takeover target more time to organize its defenses and force takeover speculators to tie up their funds longer while waiting for a deal to go through.
Trading of the Los Angeles-based insurer's stock on June 28 surged to 989,100 shares, while the price dropped 87.5 cents to close at $55.25. Shares traded as low as $54.625 on heavy selling during the middle of the day.
Average daily volume in May and June was 657,750 shares--though the average was inflated by the 4.94 million shares that changed hands during the three trading days following Gillespie's decision against Batus. Excluding those three days, average daily volume was about 583,500 shares.