November 5, 2005
State Regulation of Hedge Funds
Posted by Bill Sjostrom
According to this article in today’s W$J, Connecticut Attorney General Michael Blumenthal views federal regulation of hedge funds as inadequate. Hence, he’s considering seeking to impose additional regulations on hedge funds operating in Connecticut.
Among the changes he says he could pursue: forcing funds to disclose much more about who audits their holdings and whether they have conflicts of interest with the fund's management; changing current civil and criminal penalties for hedge-fund fraud; and requiring funds to tell prospective investors whether other investors received preferential terms. He also would like to force funds to disclose any fees paid by brokers or other parties.
Larry Ribstein discusses this article on his blog (click here). He appears to view this development as innocuous. I think we need more information before reaching that conclusion.
It looks to me that Blumenthal is talking about regulating all hedge funds operating in Connecticut, not just those organized under Connecticut law. Would this include regulations that apply to any hedge fund soliciting investors in Connecticut? A requirement “to tell prospective investors whether other investors received preferential terms” seems to imply this. If so, and other states follow suit, we could see an emergence of hedge fund state blue sky law. State blue sky laws for securities offerings generally have long been decried as unnecessary and inefficient. As a result, many aspects of them were preempted by federal law in 1996 with the passage of the National Securities Markets Improvement Act (NSMIA). NSMIA also preempted state registration requirements applicable to investment advisers with $25 million or more under management. Note that hedge funds are both investment advisers and investment companies, although they structure their affairs so that they are exempt from most federal regulations.
In my view, any additional regulation of hedge funds should come from the SEC and not piecemeal by the states. The regulation of investment companies and investment advisers has been federalized since 1940 and states were largely taken out of the picture in 1996 by NSMIA.
Posted by Bill Sjostrom
The New York Stock Exchange, Inc. and Archipelago Holdings, Inc. jointly announced on Thursday that their proposed merger will be put to a vote of the NYSE members and Archipelago stockholders on Dec. 6, 2005. Approval of the deal requires an affirmative vote of two-thirds of the votes cast by a quorum of NYSE members and a majority of the outstanding shares of Archipelago common stock. Click here for the Joint Proxy Statement/Prospectus.
The deal is truly unique. It achieves three distinct objectives for the NYSE: (1) the NYSE is converted from a not-for-profit to a for-profit; (2) the NYSE becomes a publicly-traded company, and (3) the NYSE acquires Archipelago, the operator of ArcaEx, an open, all electron stock market for trading NYSE, Nasdaq, AMEX and other equity securities.
These objectives are achieved through a series of mergers that results in (1) the conversion of the NYSE from a New York Type A not-for-profit to a New York limited liability company, and (2) both the NYSE and Archipelago becoming wholly-owned subsidiaries of NYSE Group, Inc., a newly-formed holding company incorporated in Delaware. The former NYSE members will own 70% of the outstanding stock of the holding company (each NYSE member also receives $300,000 in cash per membership as part of the deal), and the former Archipelago stockholders will own the remaining 30%. The issuance of the holding company’s stock will be registered with the SEC and hence will be freely tradable, although shares held by former NYSE members will be subject to transfer restrictions under the holding company’s certificate of incorporation. The stock will be listed for trading on the NYSE.
For some thoughts on the deal by Dale, click here for a posting he made when the deal was originally announced last May.
A group of dissident NYSE members has sued in New York state court to block the deal. The suit alleges that the NYSE board breached its fiduciary duties of candor, care, loyalty, and good faith, among other things. The crux of the complaint seems to be that the NYSE board should have sought a higher percentage of equity in the post-merger holding company for the NYSE members, i.e., the 70/30 ratio should be more like 75/25 or 80/20. A hearing on a motion for a preliminary injunction is expected the week of November 14.
The fact that the NYSE is currently a non-profit corporation makes this case more interesting. Plaintiffs can argue that the business judgment rule does not apply to non-profit corporations. Some courts have held this to be the case, others have held the opposite, although I do not believe that a New York court has ruled on this issue. One of the primary justifications of the business judgment rule is the recognition that building a successful business entails taking risks. Because potential profits often corresponds to potential risk, the law should not discourage corporate risk taking. Therefore, the business judgment rule takes out of the equation director concerns about personal liability for a risky decision turning out poorly, absent bad faith, failure to be adequately informed or self-dealing. This rationale obviously does not apply with the same force for a non-profit, although other BJR rationales may (encouraging competent individuals to serve as directors, courts ill equipped to second guess business decisions, etc.).
November 4, 2005
USA Today Article On J&J/Guidant Deal
Posted by Bill Sjostrom
Yours truly is mentioned in this article from today's USA Today concerning the J&J/Guidant deal. It's not the W$J or the NYT, but I'll take it.
Under the merger agreement the deal was supposed to close today, but the speculation is that they extended the deadline in order to continue negotiating. Click here for a Reuters article with the latest.
November 3, 2005
Spitzer Sues Guidant
Posted by Bill Sjostrom
New York Attorney General Eliot Spitzer filed a civil lawsuit yesterday against Guidant claiming that Guidant failed to inform physicians about potential defects in some of its heart defibrillators. Article here.
This development strengthens J&J’s argument that it can walk from its pending acquisition of Guidant because Guidant has suffered a material adverse effect. See this earlier post. Spitzer's suit alone may not constitute a MAE, but the way the merger agreement is worded, in determining whether a MAE has occurred, the recall, Spitzer’s suit, etc. are aggregated. Guidant’s stock is currently down $3.22 at $57.18.
Merck Found NOT LIABLE
Today, a New Jersey jury found Merck not liable in its second lawsuit over Vioxx, its former blockbuster painkiller and arthritis drug.
For coverage check the following links:
As a result of the verdict, shares of MRK were trading up $2 or 7%.
Scandal at Mercury Interactive
Posted by Bill Sjostrom
Three top executives (president/COO, CFO and General Counsel) of Mercury Interactive, a publicly-traded Silicon Valley company that makes testing software, resigned yesterday. The resignations followed an internal investigation that revealed that Mercury has been manipulating the grant date of employee stock options to benefit its employees.
[D]ates of option grants were misstated -- mostly to days when the stock price was lower than on the actual grant dates. This would have given executives and employees a bigger chance to profit from exercising options if the stock price rose. Mercury Interactive said the misdating occurred on options granted to all levels of employees.
A company can issue options with exercise prices below the stock price on the date of grant. This, however, is not typically done because it triggers unfavorable accounting treatment for the company and unfavorable tax treatment for the optionees. Mercury now has to file restated financial statements.
The investigation also revealed that the three resigning executives "benefited personally from the practices'' and "were each aware of, and to varying degrees, participated'' in the practices. This could mean jail time for them as it sounds like willful violations of securities and tax regulations. Story . . . .
November 2, 2005
J&J/Guidant Deal in Jeopardy
Posted by Bill Sjostrom
According to this article, J&J (JNJ) has broken off talks with Guidant (GDT) concerning renegotiating the price of their deal and has indicated that it might walk. As discussed in this post, whether J&J can walk without legal liability will turn on the interpretation of "Material Adverse Effect," among other things. An analyst quoted in the article sums things up as follows: "I don't see how this can end well. I think the perception is that the deal will collapse and it'll be full legal employment for both sides. I cannot see how they can avoid this all ending up in court." Maybe I was wrong with my two-day-old prediction that the parties would work something out to avoid litigation. GDT is down roughly $2.50 on the news.
Guidant asserts J&J is legally obligated to close the deal. Article here.
J&J states that it "continues to view the previously announced product recalls at Guidant and the related regulatory investigations, claims and other developments as serious matters affecting both Guidant's short-term results and long-term outlook," and believes "that these events have had a material adverse effect on Guidant, and, as a result, that it is not required under the terms of the merger agreement to close the Guidant acquisition." Press release here. This is obviously carefully worded in light of the MAE definition and the language from the IBP opinion I quoted in my earlier post (according to IBP, for a strategic buyer (as J&J is in this deal), the time horizon for determing whether a development constitutes a MAE is longer than for a financial buyer, hence the reference to "long-term outlook").
Ichan Gets An Inch
As mentioned in the previous post, Ichan Continues to Pressure Time Warner, Carl Ichan and a coalition of investors have been pushing the board of Time Warner to perform certain tasks to increase shareholder value.
In a letter to the Time Warner Board, which can be found here, Ichan asked "Why are a majority of the same directors who signed off on the disastrous AOL merger still steering the corporate ship?"
Well this week, Time Warner Board member and former Co-Founder, Chairman, and CEO of American Online (AOL), Steve Case resigned from the Time Warner Board of Directors to focus on a new project. (AP Story can be found here. And, a Forbes.com article about Case's new venture can be found here.) Time Warner's response can be found here.
Also, in his letter and in a position paper filed, Ichan and his coalition asked for Time Warner to spin off its cable unit and to buy back $20 billion in stock. Well today, in conjunction with its quarterly report (a pdf file of the quarterly report can be found here), Time Warner announced an increase in their share buyback from $5 billion to $12.5 billion. (AP report can be found here) Even though the Board did not announce a $20 billion share buyback nor a spin-off of its cable business, this is a clear indication that the hedge funds do have power to make a difference in corporate management.
See these related posts for other hedge funds in action:
Ronald McDonald Part II with related post, Will Ronald McDonald Put on His Smiley Face for the Hedge Funds... and McDonald's response discussed in this post: Ronald Frowns on Hedge Funds
Largest Shareholder Pressuring Knight Ridder
In what looks like a continuing trend (see here, here, here and here), in a letter filed yesterday with the SEC, Private Capital Management Inc., a Florida investment firm that owns 18.9% of Knight Ridder, called for the Knight Ridder board to "aggressively pursue the competitive sale of the company." Knight Ridder is one of the largest newspaper publishers in the US. Its papers include The Philadelphia Inquirer and The Miami Herald.
The letter asserts that the stock has underperformed and continues to underperform even though the company has raised its dividend, been repurchasing shares, shuffled assets and announced staff reductions. The letter states:
In our view, the actions taken to date have not adequately addressed a number of significant issues facing the Company, including (i) continuing consolidation among traditional sources of print advertising revenue; (ii) the redirection of advertising dollars to other media; (iii) the Company's unexceptional operating margins; and (iv) the Company's lack of a nationally read paper capable of being leveraged in the online market. In light of these and other factors, we view the best interests of the shareholders as being served by the Board soliciting competitive bids for the Company, either from financial buyers willing to pay fair value or industry participants that would realize synergies and increased market presence through the acquisition of Knight Ridder's highly desirable local newspaper and online advertising assets.
Click here for an article. Knight Ridder's shares rose 8.7% on the news.
November 1, 2005
Alito Nomination, Intrade and Insider Trading
Posted by Bill Sjostrom
Obviously Intrade was right on the money concerning the Alito nomination. Given the rapid pre-announcement run-up in his price as discussed here, I’m thinking that someone must have been trading on inside information. This is exactly the type of thing the SEC looks into surrounding acquisition announcements, i.e., a run-up in the target company’s stock in the days prior to the takeover announcement. The SEC then investigates who was doing the buying and whether they had any connection to the deal. If yes, insider trading charges follow.
Could the SEC go after someone for insider trading on Intrade? I think the threshold issue is whether what is being offered on Intrade is a security. Taking a quick look at the site, it appears to me that Intrade is careful not to refer to its instruments in securities-type terminology, e.g., future, option, or the like. Instead it calls them “contracts.” But I don’t see these contracts being that much different than put and call option contracts on financial indexes written by market makers at the Chicago Board Options Exchange and the like, which are securities per § 2(a)(1) of the ’33 Act and § 3(a)(10) of the ’34 Act. Both allow people to bet on which way something will go (either for speculation or hedging), are settled in cash, and expire worthless if they bet wrong. Maybe the distinction is that the CBOE options are options on an underlying basket of securities where as the Alito contracts are not, although Intratrade does offer contracts tied to market indexes. Has a court or the SEC ever looked at the issue?
Incidentally, I don’t think the Intrade contracts fall under the definition of “investment contract” established by Howey because the “in a common enterprise” and “from the efforts of others” elements are missing. But is it an "instrument commonly known as a 'security'?" The site does refer to itself as a "trading exchange."
If an Intrade contract is a security, and assuming there are no jurisdictional issues (Intrade is based in Ireland), it seems to me that if a White House insider bought Alito contracts prior to announcement of the nomination, the SEC could go after the insider under the misappropriation theory claiming that the insider “misappropriate[d] confidential information for securities trading purposes, in breach of a duty owed to the source of the information” per O’Hagan. Thoughts?
Article re: Oracle/PeopleSoft Deal
Recently posted on SSRN is a must read article for M&A aficionados entitled "Oracle v. PeopleSoft: A Case Study." Here's the abstract:
This case describes Oracle's hostile takeover bid to acquire PeopleSoft, which began with an unsolicited cash tender offer at $16.00 per share in June 2003 and ended with a negotiated deal at $26.50 per share in December 2004. Novel questions of corporate law are raised by the prolonged use of a poison pill against a structurally non-coercive, all-cash, fully-financed offer; as well as PeopleSoft's unprecedented Customer Assurance Program (CAP), which promised PeopleSoft customers between two and five times their money back if Oracle acquired PeopleSoft and then reduced support for PeopleSoft products. . . .
Click here to download the article.
October 31, 2005
Ronald Frowns on Hedge Funds
As discussed in Prof. Oesterle's post, Will Ronald McDonald Put on His Smiley Face for the Hedge Funds, Pershing Square Capital Management has been accumulating at stake in McDonald's and there had been speculation that Pershing Square would perform the same action in McDonald's as it had done with Wendy's. As discussed in Prof. Oesterle's post, Ronald McDonald Part II, Jesse Eisinger, in a Wall Street Journal article, described how Bill Ackman, the hedge fund manager at Pershing Square had intended to with McDonald's. According to the Journal, Ackman wanted McDonald's to spin off its franchise management business as well as create a real estate investment trust for its real estate holdings.
However, today, McDonald's CEO, Jim Skinner, sent a letter to the McDonald's System.
In the letter, which can be found here, Skinner states the following:
"I want to comment on recent speculation in the media about the possibility of a major restructuring of our Company. As a public company, we are continually looking for ways to enhance shareholder value. This is reflected in our recent announcement which stated we expect to return between roughly $5 and $6 billion to shareholders over 2006 and 2007 combined, through dividends and share repurchase." He continues, "we have no intention to undertake a large scale restructuring either through a McOpCo spin-off or a Real Estate Investment Trust (REIT). Neither would be in the best interests of our system or our shareholders."
Clearly, Skinner has no plans to spin off either the McOpCo, the franchising business nor the real estate of McDonald's. Also, Skinner states that keeping both of these companies in house will be in the best interests of McDonald's shareholders. Nevertheless, after Skinner's announcement shares of McDonald's dropped over a dollar. Granted, most of this buying and selling could be considered "knee jerk" reaction to Skinner's annoucement, but it makes one question whether shareholders actually believe keeping McOpCo and the real estate assets in house is in the best interests of its shareholders.
Also, it will be interesting to see if Pershing Square and/or other hedge funds come in and put more pressure on the board of directors. It appears that the hedge fund rumors in the press were causing enough problems and speculation that Skinner felt that he needed to stop the rumors. It seems that Skinner's statement was made with the hopes of getting his "team" refocused on McDonald's impressive, continuing growth plans, instead of wondering whether the "nasty" hedge funds are going to come in and cause disruption and job losses in order to unlock shareholder value.
All I know is that time will tell.
In full disclosure, I personally own shares of McDonalds in a retirement account. Also, I am not recommending the purchase or sale of the stock.
J&J/Guidant Deal Update
Posted by Bill Sjostrom
A 10/28/05 article at TheDeal.com notes that “[t]he recent price-cut dance between Johnson & Johnson [JNJ] and Guidant Corp. [GDT] has arbitrageurs scurrying to review the law on material adverse effect, or MAE, clauses, the provisions in merger agreements that specify when a party may walk from a deal.” As explained in this earlier post, on 9/30/05 there was an $8 per share arbitrage spread between the GDT market price and what J&J will pay for the shares if the deal closes. This spread has since increased to around $13, i.e., GDT has dropped $6, following rumblings from J&J that it wants to renegotiate the price (post).
Whether J&J will be successful in getting a lower price depends in large part on whether the recent recall, etc. by Guidant triggers a walk-away right for J&J. I took a quick look at the merger agreement, and it looks to me that J&J can walk from the deal if the Guidant recall has had or would be expected to have a “Material Adverse Effect” on Guidant. See sections 3.01(u), 6.02(a) and 7.01(c). Hence, the scurrying.
The merger agreement defines MAE as “any change, effect, event, occurrence, state of facts or development which individually or in the aggregate would reasonably be expected to result in any change or effect, that is materially adverse to the business, financial condition or results of operations of [Guidant] . . .; provided, that none of the following shall be deemed, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Material Adverse Change or Material Adverse Effect: (A) any change, effect, event, occurrence, state of facts or development (1) in the financial or securities markets or the economy in general, (2) in the industries in which the Company or any of its Subsidiaries operates in general, to the extent that such change, effect, event, occurrence, state of facts or development does not disproportionately impact [Guidant] or any of its Subsidiaries, or (3) resulting from any Divestiture required to be effected pursuant to the terms of this Agreement or (B) any failure, in and of itself, by [Guidant] to meet any internal or published projections, forecasts or revenue or earnings predictions (it being understood that the facts or occurrences giving rise or contributing to such failure may be deemed to constitute, or be taken into account in determining whether there has been or would reasonably be expected to be, a Material Adverse Effect or a Material Adverse Change)” (empahsis added).
Whether the recall (and probably some other stuff too) falls within this definition may ultimately have to be decided by a court. The merger agreement dictates that the suit would be heard in the U.S. District Court for the Southern District of New York, and Indiana contract law would apply.
I suspect there is no Indiana case law on point. There is, however, the 2001 Delaware decision in In re IBP Inc. which involved interpreting the MAE clause in a merger agreement between Tyson Foods and IBP under New York contract law. In that case the court rejected Tyson’s argument that a deterioration in general economic or industry conditions, such as a downturn in the supply of cattle to IBP, constituted a MAE. The court’s reasoning included the following:
To a short-term speculator, the failure of a company to meet analysts' projected earnings for a quarter could be highly material. Such a failure is less important to an acquiror who seeks to purchase the company as part of a long-term strategy. To such an acquiror, the important thing is whether the company has suffered a Material Adverse Effect in its business or results of operations that is consequential to the company's earnings power over a commercially reasonable period, which one would think would be measured in years rather than months. It is odd to think that a strategic buyer would view a short-term blip in earnings as material, so long as the target's earnings-generating potential is not materially affected by that blip or the blip's cause.
Note that the Tyson/IBP merger agreement defined a MAE as “any event, occurrence or development of a state of circumstances or facts which has had or reasonably could be expected to have a Material Adverse Effect ... on the condition (financial or otherwise), business, assets, liabilities or results of operations of [IBP] and [its] Subsidiaries taken as a whole....” (emphasis added). As emphasized above, the J&J/Guidant merger agreement says “would reasonably,” which arguably establishes a narrower standard for what constitutes a MAE.
Basically, there is no telling how a court would rule, but I would be surprised if it actaully came to litigation. It's probably in both company's best interests to work something out.
October 30, 2005
Securities Offering Reform Effective in One Month
Major changes to the Securities Act of 1933 that greatly liberalize the public offering process, escpecially for "well-known seasoned issuers," go into effect on December 1, 2005. Click here for the massive 468-page adopting release. If that's too long for you, click here for a more modest 110-page Sullivan & Cromwell memo discussing the changes. If that's too long for you as well, there is a five page summary at the beginning of the Sullivan & Cromwell memo. Additionally, the SEC has put out a much shorter "Securities Offering Reform Transition Questions and Answers" release. Click here for that.
Going Public Through a Public Shell Reverse Merger
Posted by Bill Sjostrom
A recent article on CFO.com (click here) suggests a reverse merger with a public shell as a financing alternative for a private company. I have always been very dubious of this as a capital raising method.
How does it work? A private operating company merges into a non-operating or shell public company. In the merger, the operating company shareholders are issued shares of the shell in exchange for the operating company shares. Post-merger, the former operating company shareholders own 80-90% of the shell (which now contains the assets and liabilities of the operating company) with the remaining 10-20% owned by the existing shell company shareholders (i.e., the shell’s promoter and its affiliates). The shell company’s name is then changed to the name of the operating company, and the company’s shares are listed for trading on the Pink Sheets or, if it has at least 200 shareholders, the OTC Bulletin Board.
Where do these public shells come from? There are many promoters of public shells out there. Do a Google search of “public shell” and you’ll see what I’m talking about. These promoters typically incubate their own shells—they incorporate a company, voluntarily register its shares under the 1934 Act, and then timely file with the SEC the required quarterly and annual reports. Because the shell has no operations, its fairly simple and inexpensive to make these filings. In exchange for letting an operating company merge into a shell, the promoter charges the operating company a fee and retains the 10-20% interest in the shell post-merger. They pitch the shell as quicker, easier and cheaper way to go public than through a conventional IPO.
I guess the pitch is technically correct but certainly misleading. For a conventional IPO, a company retains an underwriter who facilitates the sale of millions of dollars of newly issued shares to the public. Thereafter, the underwriter helps develop an active secondary market in the company’s stock by making a market in the stock, having its analysts cover it, etc. The underwriter may charge as much as 10% of the gross proceeds of the offering as compensation for its services, but at the end of the day the company has millions of dollars of new capital to grow its business.
With a shell merger, the company does avoid the underwriter’s fee but at the expense of giving up an ownership interest to the promoter. The company is now public in the sense that its shares are registered with the SEC and quoted on the Pink Sheets or OTC Bulletin Board, but it has not received the two primary benefits of going public: additional equity capital and share liquidity. Merging with a shell does not raise any capital. As for liquidity, no underwriter is helping to develop active trading in the company’s stock, so while the shares are technically publicly traded, the market is illiquid. Nonetheless, the company now faces the many disadvantages of being public including increased expenses, increased liability exposure, and loss of confidentiality.
The article notes that a shell merger is often coupled with a PIPE (private investment in public entity) transaction, implying that having a pseudo-public market for a stock may improve the chances of receiving private equity capital. This may be true, but it also shuts the company out of future potential VC financings because many (most?) VCs are not interested in investing in public companies.
With that said, many companies may have no other financing alternative—no VC is willing to invest, no underwriter is willing to take them public, etc. But I wouldn’t even label a public shell merger as a financing alternative. While not a great alternative, I think these companies would be better off trying a direct public offering. Click here for some thoughts on private placements.
Note that as the article mentions, the SEC has recently adopted rules to further regulate public shells. Click here for the release.
Executive Compensation: Independent Nominating Committees
In response to my earlier post on executive compensation, Bob Schwartz commented that the answer is in independent nominating committees who put truly independent directors on compensation committees. We have had independent nominating committees required by the NYSE since 2002 and many companies have voluntarily had them in place long before the NYSE change. They did not work. The nominating committees consist of folks who listen to the CEO. It would be odd to do otherwise. A nominating committee that could not listen to the CEO or any other insiders would be an anomaly indeed. Large shareholders? But large shareholders always talk tot he CEO. If prohibited from talking to insiders (or large shareholders) about directors that would help the company, whose recommendations can they take? Professional consultants (who failed when running their own companies)? CEOs of competitors in the industry? Other part-time directors? At some point the sanitation process gets silly.
Litigation Against Critics
Three separate stories caught my eye this week. First, in Business Week a feature story on Jim Kramer noted that a blogger in Tacoma Washington was keeping track of Kramer's stock picks on his hit show Mad Money and was charting whether or not the picks made money. The blog was popular. CNBC lawyers shut the cite down with a "cease and desist letter. Second, Gretchen Morgenson wrote a column in the Sunday NYT on Jay M. Meier, who, as a stock analyst, correctly projected in March of this year a falling stock price for Digital River. The company sued Meier for technical errors in some of his reports (e.g., number of options held by executives) and forced him to stop commenting on the company. The stock was 40 when he made his projection and is currently trading at 28. Third, Special Prosecutor Fitzgerald indicted the Vice President's Chief of Staff, Lewis Libbby, for perjury in his investigation of a leak of the identity of a covert CIA agent.
The common thread? If you do not like the essential message (and cannot contest it without difficulty), sue for a technical violation of something to stifle the messenger. You could care less about the technical violation; it is just a tool to disable someone who is giving you trouble.
To err is human. We all make mistakes. Many years ago a prosecutor friend of mine told me that he could indict anyone, given enough time to inspect every aspect of their lives. A tax mistake here, a false or unfilled record there, an exaggeration on a resume when young, a divorce document filed in anger ... He himself relieved the stress of his job with some weed.
Those in high profile jobs, especially when they criticize other high profile folks who do not like it, are busy and there jobs care complicated. They, of course, are the most likely to skip a detail and the most likely to have an angry opponent sue them for it. Once turned over to litigators these prosecutions have a life of their own, as those hired to prosecute or sue have an interest in results not the common sense of perspective. Judges can operate around the edges of legal doctrine to bring reason to the process but it is hard to do once the charges are in proper form and in a public forum.
Using litigation as a tool to attack critics has social consequences. It would be a dull place if every high profile critic wrote in bland legalese to avoid litigation.