Four current and former minor league baseball players illegally traded on Jack in the Box Inc.’s US$575 million purchase of Del Taco Restaurants Inc., according to the U.S. Securities and Exchange Commission.

Jordan Qsar, Austin Bernard, Grant Witherspoon and Chase Lambert allegedly made about $190,000 by trading in advance of the purchase, according to the SEC lawsuit filed in federal court in San Diego on Tuesday. Lawyers for Qsar and Lambert didn’t respond to requests for comment — nor did Bernard and Witherspoon.

According to the SEC, Qsar was told about the upcoming purchase by a former teammate from Pepperdine University’s baseball team who was working on the due diligence of the acquisition for Jack in the Box. The SEC said Qsar learned about the deal when he was out drinking with his former teammate in San Diego in October 2021. 

Qsar went on to tell Bernard, Witherspoon and Lambert, who had played baseball together, about the potential acquisition. Each then purchased out-of-the-money call options on Del Taco stock, which was then trading on the Nasdaq with the symbol TACO, according to the SEC.

The SEC didn’t accuse the unidentified Jack in the Box employee, that restaurant chain, or Del Taco of wrongdoing in its complaint. A Jack in the Box lawyer said in a statement that the fast-food chain was unaware of the allegations and has policies in place to prevent insider trading.

Despite knowing of a potential deal, the SEC said that Qsar and Witherspoon texted each other pretending that Del Taco was a great investment opportunity. They tried to come up with alternative explanations for their trades, the regulator said.

In one example cited by the SEC, Witherspoon texted Qsar: “[c]heck out this stock guys Del taco, this chart is looking bullish to me. Might try to gamble on some options or something, I love to eat at del taco,” according to the SEC. Qsar and Witherspoon allegedly made trades in Del Taco options from the locker room of a baseball training camp they were both attending.

Call options

When Jack in the Box announced it was buying Del Taco in December 2021, Del Taco shares jumped and the four ex-teammates made about $190,000 in profit, according to the SEC. The regulator is seeking to claw back those profits and force the players to pay fines.

Last season, Qsar played for the Lehigh Valley IronPigs, the Philadelphia Phillies Triple-A affiliate. He was most recently in the Washington Nationals organization until he was released in March. On March 21, Witherspoon signed a contract to join the Seattle Mariners minor league organization. Bernard recently signed to play baseball in India, and Lambert works as a coach and an electrician, the SEC said.

The case originated from the SEC’s data analysis center, which analyzes market data to detect suspicious trades. Unusual purchases of options ahead of merger announcements can trigger an investigation.

“It baffles me that folks still think that they could buy way-out-of-the-money call options before some announcement, and not think that they’ll trigger some sort of alert or some sort of tool that we have out there looking at this information and get caught,” Gurbir Grewal, the SEC’s enforcement chief, said earlier this month. He didn’t reference any particular case or investigation.