The stock price of Chase Federal Bank surged 32% in heavy volume late Friday afternoon, before the thrift announced Monday it would be acquired by NationsBank Corp. (See story on page 1.)
The trading, which appears to indicate word of the deal leaked, has already prompted inquiries from the National Association of Securities Dealers, and could attract the attention of Federal securities regulators.
The stock of the Miami-based thrift, which on Friday traded at $5.50 as late as 1:34 p.m., closed at $7.25 that day. Volume topped 79,000 shares, or 12 times the daily average. More than two-thirds of that volume occurred in the last 90 minutes of trading.
"These facts will likely elicit an investigation by the National Association of Securities Dealers and the Securities and Exchange Commission," said Jack Coffee, a professor at the Columbia University School of Law, who specializes in corporate and securities law and white- collar crime.
The agencies will look at whether insiders - the investment bankers, lawyers, brokers, and investors connected to these parties - made trades on this day, he said.
The securities dealers association, which regulates the Nasdaq securities exchange on which Chase Federal trades, contacted the thrift on Friday afternoon and Monday morning to inquire about the trading, said Frank Barbato, a company spokesman.
Chase Federal does not know why its stock acted irregularly, Mr. Barbato said. But after discussions with the securities dealers association, the company feels confident the agency will not pursue the issue further, he added.
A NASD official would neither confirm nor deny the agency was looking into the trading, but did concede Chase's Friday trading data could lead to an investigation.
"This kind of price increase, absent news or prior to news, would indeed be something that would set of some bells and whistles at our surveillance center," said Marc Beauchamp, a spokesman for the securities dealers association in Washington.
Last year, the association investigated 359 incidents of suspicious trading activity following mergers, and referred 113 of them to the SEC. The SEC, citing agency policy, did not comment.
If illegal insider trading did occur at Chase Federal, it would not be the first time among banks and thrifts, experts maintain. As consolidation has swept the banking industry, insider trading has boomed, said Thomas J. McGonigle, a lawyer with McGuire, Woods, Battle & Booth in Washington, D.C.
In fact, roughly one-quarter of the firm's 25 to 30 insider trading cases are bank clients, he said.
As a rule, much of today's insider trading occurs among relatives and friends of insiders, and not on Wall Street, he said. Wall Street learned its lessons in the 1980s, but Main Street may not realize the extent to which the SEC and NASD can police this activity, Mr. McGonigle said.
If the SEC does find evidence of insider trading at Chase Federal, it would be a double whammy for investors. While news of NationsBank's impending acquisition of Chase Federal may have leaked, news of the takeover price did not.
NationsBank said the acquisition valued Chase Federal at $5.24 per common share - or $2.01 per share lower than Friday's closing price.
As a consequence, Chase shares crashed on Monday, falling 32% to $5, the third-largest stock drop on any exchange for the day.
Bank stocks overall were sluggish on Monday. Fears that new economic data expected this week could show that continued economic improvement depressed bond prices. The Standard & Poor's index of major banks fell 0.47%. The S&P 500 rose 0.70%.
