Mystery Trader's Options Bet Linked With Debt Ceiling Bill Leads To Insider Trading Concerns: Report

A mystery trader is reportedly sitting on significant gains on an options bet regarding a 300-mile natural gas pipeline that was green-lit by the United States government as part of the debt ceiling agreement. Interestingly, the gas pipeline approval surprised most Wall Street analysts, many of whom had anticipated just vague promises on energy permits to be included in the bill to raise the U.S.' borrowing limit, according to a Bloomberg report.

On May 24, a huge bullish bet was made on Equitrans Midstream Corp ETRN which is the company involved in the long-delayed Mountain Valley Pipeline, according to data compiled by Bloomberg. The bet involved loading up on 100,000 call options on the company's stock, it said.

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On May 27, White House and Republican lawmakers reached an agreement that would give the Mountain Valley Pipeline the final approvals required to complete the project.

“We are grateful for the full support of the White House, the strong bipartisan leadership of Democratic and Republican legislators, the resolute dedication of Senator Capito, and the unwavering commitment of Chairman Manchin for recognizing and declaring MVP as a critical energy infrastructure project,” said Thomas F. Karam, chairman and chief executive officer of Equitrans Midstream, in a statement dated June 3.

On paper, the trader's bet seems to have earned $7.5 million through Friday, according to the Bloomberg report which also indicated that the trade is attracting a lot of attention for its timing. Shares of Equitrans have surged over 53% in the last five days, according to Benzinga Pro.

Equitrans told Benzinga in an email that neither the company nor any of its executives were involved in the transaction.

The options underlying the trade seem to be outstanding, according to the report. That indicates no one has yet cashed in the trade and the gains could grow if the rally persists.

Expert Take: Donald Sherman, chief counsel at the ethics watchdog Citizens for Responsibility and Ethics in Washington, asked: "My questions are: Who's the trader? How sophisticated are they? And what are their connections to the government?" the report pointed out.

Philip Khinda, head of the SEC enforcement practice at Cadwalader, told Bloomberg the challenge for investigators isn't just to learn if the information was shared but to uncover the intent in sharing it. "These are very difficult cases to bring, because of both the legal and investigative complications they pose," he said.

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