M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Friday, May 6, 2011

SEC moves on those phantom AMR/Kodak bids

About six weeks ago, AMR and Kodak were the recipients of mysterious "bids."  At the time, I noted that the man at the center of the "bid" - likely scrawled on the back of napkin or worse sent via Twitter - was already known to the SEC.  By "known" , I mean he was already subject to previous enforcement effots by the agency.   I suggested that if there were any market manipulation charges to be brought as a result of the Kodak and AMR bids, that the SEC could be trusted to move.  Well, they have.  Yesterday, the SEC broiught a compalint against Allen E. Weintraub in connection with each of those "bids".  According to the complaint filed on Wednesday by the SEC:

Weintraub, the sole owner, officer, director, and employee of his company, Sterling Global, an inactive Florida corporation, emailed a written tender offer to Eastman Kodak Company (“Kodak”) for all its “outstanding stock” at a total price of approximately $1.3 billion.   On March 29, 2011, Weintraub emailed substantially the same letter to AMR Corporation (“AMR”), the parent company of American Airlines, offering to purchase all “outstanding stock” of AMR for approximately $3.25 billion.  Both offers represented almost a 50% premium over Kodak’s and AMR’s then closing prices.

Weintraub is a convicted felon on probation for fraud in the State of Florida, and is subject to a prior injunction issued by this Court against violations of the antifraud provisions of the federal securities laws, as well an Order of this Court barring him from acting as an officer or director of a public corporation.  Weintraub and Sterling Global lack the means to complete the tender offers.  Weintraub filed for personal bankruptcy in April 2007 and has not paid a nondischargeable prior judgment in favor of the SEC in the amount of $1,050,000.   Weintraub and Sterling Global have substantially no assets.  

Hey, it's not like this guy is totally without means.  He tried to get financing for these purchases.   Look, here:

Weintraub entered an Aventura-area branch of [a large commercial] bank, and represented to a customer representative that he was a significant shareholder in an unnamed public aviation company that he wanted to take private.  In order to take the company private, Weintraub told each bank that he would need at least a billion dollars in financing.  Weintraub also volunteered information about his own purported business experience.  Since the banks’ local branch offices typically did not handle the type of financing Weintraub was seeking (which would generally be handled by the banks’ investment banking units), the local bank personnel initially tried to determine what Weintraub was requesting and whether other units of their respective banks might be able to address Weintraub’s requests.   Each bank ultimately declined to go forward with any business relationship or financing agreement with Weintraub or Sterling Global.

What?  Isn't that how you finance two large going private deals - by goign to the local branch of BoA or Citi for a loan?!

In any event, the SEC is not pleased.  They are alleging all sorts of violations o fthe tender offer rules - mostly the ones dealing with fraudulent offers.  I wonder why.  I wouldn't have guessed that it was against the tender offer rules to make a fraudulent offer to purchase.  For those students still studying for exams, it's a great set of facts to use as a review in preparation for your upcoming securities regulation exam.  




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