August 19, 2011
August 18, 2011
The M&A Game
I know this a recruiting device for a fancy Dutch law firm, but simulating a cross-border acquisition in a game like this would be a great capstone activity for my M&A class. I wonder ... can I download this onto my iPhone?
August 17, 2011
More on Insider Trading and Relationships of Trust and Confidence
A commenter on my previous post on the hazards of telling your no-goodnik boyfriend material, non-public information asked whether it made a difference in the analysis if the person with whom you are sharing material, non-public information is a spouse.
In short, it doesn't. It just hurts more to learn that they person you have decided to spend the rest of your life with is a jerk. Christie Hefner, former CEO of Playboy, is probably learning that right now. Last week, the SEC charged Hefner's husband with insider trading:
The Securities and Exchange Commission today filed a civil injunctive action in the U.S. District Court for the Northern District of Illinois charging William A. Marovitz, the spouse of former Playboy CEO Christie Hefner, with illegal insider trading in Playboy stock in advance of public news announcements.
The SEC alleges that on five occasions between 2004 and 2009, Marovitz traded based on confidential information that he misappropriated from Hefner, who was the CEO of Playboy during most of the trades at issue. Marovitz bought and sold Playboy stock in his own brokerage accounts ahead of public news announcements despite instructions from his wife that he should not trade in shares of Playboy and a warning from the general counsel of Playboy about his buying or selling Playboy stock. In total, Marovitz gained profits and avoided losses of $100,952.
According to the SEC’s complaint, between 2004 and 2009 Marovitz misappropriated confidential, non-public information about Playboy from Hefner. Hefner made clear to Marovitz in 1998, both personally and through Playboy’s general counsel, that she expected him to keep any information he learned from her about Playboy confidential and not to trade based on this information.
The SEC doesn't particularly care aboout the legal status of the relationship -- husband/wife, boyfriend/girlfriend, boyfriend/boyfriend, father/son, it doesn't really matter. What matters is that between the two people there is a "relationship of trust and confidence" and that the recipient knows or should know that he is receiving material, non-public information and should not trade on it.
If the recipient (e.g. the CEO's spouse) consoles his wife about an upcoming negative earnings release ("It's okay, honey, you've done everything you could. Anyway, you know I love you.") and then goes out and trades on that information ... well ... first of all, he had betrayed the trust that the spouse has put in him. In short, he's a jerk. The SEC also considers that a violation of a fiduciary duty to the spouse in this case sufficient to trigger liability under the misappropriation theory of insider trading.
So, it's a tough call. You work 18 hours a day. When you come home, your spouse wants to know what you've been doing all day that justifies you missing your children's school plays, dinners with family and friends, etc. Discretion is the textbook answer, but that's not easy. More often than not, we tell our significant others everything and then trust that we've made the right choice. Sometimes we're right, sometimes we're not.
Mobility's Change of Control Agreement
Footnoted.com is doing yeoman's work reading lots of corporate filings so you don't have to. Most recent example is Motorola Mobility's recent filing of a Change of Control Agreement (exhibit to their 10-Q) just a couple of weeks ago in advance of the announcement of transaction. MMI's CEO stands to do pretty well when the transaction with Google closes. According to Footnoted.com:
Diving into the proxy, the amount that Chairman and CEO Sanjay Jha stands to make is pretty eye-popping: over $90 million, although that number includes a $22 million gross-up for taxes — something that Jha and other Motorola executives apparently agreed to give up earlier this year.
Still, even without the tax gross-up (can I get one of those, please?), $68 million is plenty incentive to get this deal done. It's worth remembering that Change of Control Agreements are vestiges of the good old days of the hostile takeover movement. I know it's hard for people to believe this now, but these severance agreements that guarantee huge payouts to managers in the event of a sale were a good governance reform! They made sense at the time, but things, I think, have changed. Given the amount of stock and options now used as part of any compensation package, managers are much less likely to have negative knee-jerk responses to acquisition offers. For the most part, managers probably no longer need the extra kick that many of these severance agreements give - especially given the large amounts of negative attention they can sometime attract. Remember Home Depot?
August 16, 2011
Another school year, more lessons for young lawyers
Apologies for the relatively long hiatus. Blogging is more work than it seems at times and sometimes one needs a little break. In any event, the current administration is continuing to teach lessons to the current generation of idiot inside traders. Law students -- there are real life lessons to be learned from the experience of a young woman who interned at Walt Disney in 2009.
Lesson number one: Don't share material non-public information with your no-goodnik boyfriend. Why? Isn't it obvious by now? Cause he probably doesn't love you as much as he loves money.
The allegations that the SEC is making against Toby Scammell are really just head-shaking. One wonders not just where the moral compass is, but what happened to common sense.
First, Scammell's girl friend was working as an "extern" at Walt Disney during the summer of 2009. She was assigned to work on the deal team that was taking the lead on the acquisition of Marvel. For her, this was apparently an important career opportunity. She shared her good fortune with her boyfriend of two years, Scammell. She discussed with him whether or not she should delay applying to business school so she could include the Marvel acquisition experience in her application. She discussed with him the timing of the deal - because it apparently impacted on plans they had to attend a wedding together. She let him access her Blackberry where she kept work-related e-mails, etc.
Of course, it turns out that Scammell was less than a loyal boyfriend. The SEC alleges that Scammell made over 3000% profit on short term call options in Marvel that he purchased on the basis of the inside information he misppropriated from his girlfriend. Not only that, but his purchases of short term call options swamped the market - making it more than a little obvious to investigators that something was up:
Apparently, Scammell had only purchased options once before -- long-term Google call options in which he lost 99% of his investment. So, his purchases of short term Marvel options was highly unusual.
Of course, with all insider trading prosecutions, the real challenge for the government is scienter. Well, it appears that Scammell went out his way to help the government with its case:
Googling "insider trading"?! C'mon.
Why does it matter that he didn't mention his trades and profits to his brother? Oh, I forgot to mention that Scammell was managing the finances of his brother who was serving Iraq. The SEC alleges that Scammell was hard up on funds, so he accessed his brother's account to get cash to fund his option purchases.
I'm sure this guy was planning on telling his brother about the profits ... at some point. In fact, Scammell's brother didn't learn about the profits Scammell made with his funds until the SEC called him months later to ask him about it.
There are real lessons for law students and young associates in this story. First, discretion is the watch-word. Just because you happen to love your boyfriend, doesn't mean that he won't trade on your inside information. Don't believe me? Just ask Scammell's girlfriend.
It's no way to start a professional career.
Here's the SEC complaint.