Tuesday, May 22, 2007
Jenny Anderson's column in today's New York Times explores the disclosure duties relating to the use of "big boy" letters -- a promise by the purchaser not to sue the seller frequently used in private sales of securities. In a case scheduled to go to trial in New York next month, a hedge fund, R2, is suing Smith Barney, which sold $20 million of World Access bonds while in possession of confidential information about the company's distressed financial situation. The initial purchaser, the Jefferies Group, resold the bonds to R2, without disclosing the existence of the "big boy" letter it agreed to sign. Two days later the World Access bonds plummeted in value. Lawyers interviewed by Ms. Anderson divided on whether Smith Barney and the Jefferies Group acted improperly. See NYTimes, Side Deals in a Gray Area.