We don’t make the law, folks, we just help you follow it. Comply with your regulatory requirements right here.
Or I guess you could read Dan Primack’s summary of the SEC’s vote to allow general solicitations for private placements, but don’t take him too seriously when he says “Issuers do not need to generally solicit. They may continue to do business the old way, which many of the top-performing fund managers are likely to do.” You may not be absolutely required to advertise on Dealbreaker, technically speaking, but sources at the SEC assure me that it’s sort of an informal best-practices requirement. Certainly the safer course is to buy a banner ad today.
One thing about the new rules is that they’re not really rules about hedge funds. At their core, they let people with cockamamie money-making schemes publicly advertise to raise money from “accredited investors” – rich people – without going through the bother of SEC registration and being a public company. One particular category of cockamamie money-making scheme is running an investment fund exempt from the requirements of the Investment Company Act of 1940, but there’s an infinity of other schemes. The SEC’s vote comes too late for Great Idea Corp., which has already filed to go public, but presumably the next entrepreneur with a Great Idea and a burning desire not to tell his investors what it is will avail himself of the new general solicitation rules.
Also though: people with legitimate businesses? Read more »
Fabulous Fab Tourre is on his way to trial in the SEC’s securities-fraud lawsuit over the Abacus synthetic CDO he built at Goldman Sachs for John Paulson, and Andrew Ross Sorkin has a column today about all the things that the SEC doesn’t want him to be allowed to say to the jury. You should read it, it’s enraging, though who you get enraged at is entirely up to you.1 But I’ll give you a quick and tendentious summary, which is:
The SEC’s main argument is that Fab deceived ACA, the “portfolio selection agent” on the Abacus deal, and
ACA were sort of stupid scumbags, and
the SEC understandably doesn’t want the jury to find that out.
notice when an anonymous foreigner buys a ton of otherwise thinly traded short-dated out-of-the-money call options just before a company announces big merger news that pushes the stock way up and makes those options suddenly hugely valuable, and
go to court to take away the anonymous foreigner’s possibly ill gotten gains.
What do you think of that? Like, on the one hand, my aesthetic sensibilities are offended, and my sense of fair play: really they ought to have some evidence of insider, as opposed to just lucky, trading. On the other hand it does seem like good police work, and if the anonymous foreigners want their money back they can always show up and dispute the SEC’s charges.1
Certainly the latest case, where the SEC froze two trading accounts of shadowy offshore figures who went and bought a lot of call options on Onyx Pharmaceuticals two weeks ago, just before Onyx announced last Sunday that it had received and rejected an acquisition proposal from Amgen, is pretty suspicious. From the SEC’s complaint: Read more »
A question that you may or may not find interesting is: have the U.S. government’s rather strenuous recent efforts to stamp out insider trading actually reduced insider trading? How would you go about answering that, if you really wanted to know? I guess the right approach would be a survey; like, go email every hedge fund manager and ask “have you insider traded in the last 12 months? more or less than you used to?” and see what they say. That has … problems, so you look for proxies. Do stocks tend to go up, on heavy volume, before the announcement of secret good news? Then that at least suggests that someone traded on the secret good news before it was announced. It’s something.
A while back I idly committed some pseudoscience about pre-merger trading and found some indications that (1) stock prices and volumes tend to increase before mergers and (2) that increase has been more pronounced in say 2009-2013 than it was in say 2001-2008. This would seem to be weak evidence of increasing insider trading? This was a little puzzling given:
those strenuous efforts, lots of people going to jail for long periods, etc.; and
my assumption, anyway, that traders would be rational and competent judges of risk and reward who would weigh the increased odds of being caught and sent to prison in their decision to insider trade or not.1
But there my pseudoscience was. Anyway I learned today (via) about a recent study where some b-school professors committed some … I dunno, whatever b-school professors do, something between “pseudoscience” and “science” … of their own and got the opposite result, so I figured I’d pass it along. Here’s the abstract: Read more »
Well, technically there’ll be some, but a lot fewer instances than in the past. Don’t do the crime if you can’t do the can’t do the time and admit publicly to [circle all that apply] insider trading/running a fake hedge fund/blowing investor money at T.G.I. Friday’s. Read more »
If you’re a director of a public company with a controlling shareholder, and that shareholder wants to buy out the rest of the shares, you have a problem. On the one hand, you have fiduciary responsibilities to your non-controlling shareholders to get them the best possible deal. On the other hand: you have a controlling shareholder! He’s controlling! He has inside knowledge that no outside bidder or shareholder can match. He can do stuff like fire you, or make it impossible for you to sell to a higher bidder, or generally make life unpleasant if you reject his bid. He’s got a distinct advantage in negotiating against you, his employee.
Courts and lawyers try to minimize this problem through arid procedural stuff – lots of disclosure and independent directors and majority-of-the-minority votes and “entire fairness” review – but it’s actually just a real problem. You can read about the pending Dole buyout, where founder/CEO/40% shareholder David Murdock wants to buy back his company at an inglorious 18% premium and is carefully following1 all those arid procedural rules, and ask yourself: who cares? Are shareholders really in the same negotiating position as they would be if they were selling an un-controlled company to an outside bidder? Mehhhhh.
But that’s boring and instead you should read today’s astonishing SEC order stemming from the approach to this problem taken by the board of Revlon, a company that at this point is probably more famous for making merger law than cosmetics.2 In 2009, Revlon’s 61% shareholder, Ron Perelman vehicle MacAndrews & Forbes, wanted to buy out the rest of Revlon in a moderately convoluted way.3 So M&F and Revlon negotiated a merger, but that ran aground when Revlon’s M&A banker, Barclays Capital, told Revlon that its fairness committee had said no dice: Read more »
“Self-regulation is a unique and fundamental component of federal securities regulation in the United States,” the SEC begins its order against the CBOE announced today, but it’s also a little silly. It’s right there in the name! If you’re doing it yourself, it’s not regulation; it’s just some stuff you’re doing. Regulation is being forced to do what you don’t want to do. And who better to force you to do what you don’t want to do than a voluntary organization that relies on your business to pay its salaries? Lots of people probably.
“CBOE agreed to pay a $6 million penalty and implement major remedial measures to settle the SEC’s charges,” from which you’d think there was a lot of terrible malfeasance. But not really? The order is more like a list of minor harmless-ish lawlessness by CBOE, albeit a long and varied list. As best I can tell it grew out of a sequence of events something like the following:
A CBOE member firm, optionsXpress, engaged in a mildly complicated naked short selling scheme in violation of Regulation SHO.1
CBOE didn’t catch it because, basically, they were dolts at Regulation SHO. From the order:2