Thursday, June 6, 2013
This came across the Twitter-machine while I was sitting in the 8th Annual Carroll School Finance Conference this morning:
The Securities and Exchange Commission today announced an emergency court order to freeze the assets of a trader in Bangkok, Thailand, who made more than $3 million in profits by trading in advance of last week's announcement that Smithfield Foods agreed to a multi-billion dollar acquisition by China-based Shuanghui International Holdings.
OK, so this guy is an idiot of huge proportions. Why? Well, because he was asking to get caught. It's really, really awful. OK, so first and foremost. This guy doesn't have a trading account until May 10 when he opened one. It seems he was in quite a hurry to get started trading, too. According to the complaint:
On May 17, 2013, Rungruangnavarat e-mailed Interactive Brokers and inquired whether the account was open. Rungruangnavarat wrote: "Please let me know if the account opening is done, so i can start funding the account. I want to trade US options, so please confirm if my account is readily trad-able [sic]."
R. then funded the account to the tune of $2.92 million. He immediately started trading -- however, only exclusively in Smithfield call options and futures. Nothing else. OK, so he's a little single minded.
And when R. traded, he swamped the market - making up almost 80% or so of all July 29 call options and 99%(!) of all July 30 call option trades cleared in the month of May. What?! That's right, he might as well have put a "kick me" sign on his butt. If that weren't enough, R. also purchases Smithfield futures. There his purchases were 100% of the total cleared market. Ugh. He cornered the market in Smithfield options and futures and made a 3,400% when the acquisition was announced.
OK, so maybe he is just a bright guy sitting in Bangkok with a good idea. Yeah, maybe. The SEC complaint drops this little tidbit:
Rungruangnavarat has a Facebook friend who is a former employee ofthe company where Rungruangnavarat works, and who is an associate director at the Thai investment bank that advised Charoen on its contemplated Smithfield bid.
Bit in the ass by Facebook. Idiot.
Tuesday, June 4, 2013
Paul Hodgson at Forbes questions the Dell board's reasoning behind issuing Michael Dell more stock as part of his new compensation package. He has a point. The reason we might like stock compensation for managers is that we believe that ownership of equity, even substantial blocks of it, increases alignment of the managers' long-term interests with that of stockholders. They rise and fall with us, the regular stockholders. So far, so good. Mostly. Anyway. What about Dell?
Well in its proxy, it disclosed Michael Dell's compensation package for the fiscal year ending just a few days before announcement of the going private transaction. It turns out that last year - during the period in which the board knew or should have known that Dell was negotiating to buy the company - most of his compensation was stock. I guess I would question the wisdom of granting more long-term equity compensation to a CEO when he is in the process of collecting votes to take the company private. At that point, his interests and the interests of the stockholders are no longer in alignment and it doesn't matter how many more shares he is issued, they won't be.
Any of my students from my basic corporations class will tell you that I spend an inordinate amount of time at the beginning of every semester on issues of agency. Agency is a course that has fallen out of fashion in law schools. That's too bad. It's really important. In any event, I use agency because it helps students develop the vocabulary and the intuitions that will become important when we turn to the corporate law. In any event, all of this is to lead into the follow link to Above the Law. Now, much as I enjoy the legal gossip on ATL, I don't link to it much. But, I am happy to break that informal rule today. Why? Well, because there is an exam-worthy example of agency there today: A 3L at Indiana's Mauer School of Law was named "Interim Director of Admissions" or was he? I'm definitely going to use this example in class next year. Who could make these facts up?!
Monday, June 3, 2013
[Updated] Here are a handful of law firm memos on the MFW Shareholders Litigation (in which the Delaware Court of Chancery held that the Business Judgment Rule applied to a freeze-out merger that was conditioned on the approval of both an independent Special Committee and a Majority-of-the-Minority stockholder Vote). Brian discussed the same case here.