Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, July 6, 2007

CME Increases Bid for CBOT Again

With the shareholders' vote scheduled for Monday, Chicago Mercantile Exchange increased its bid for COT Holdings for the third time.  IntercontinentalExchange made a competing offer, which the CBOT board rejected.  See WSJ, CME Sweetens CBOT Bid Ahead of Next Week's Vote.

July 6, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Smaller Reporting Company Regulatory Relief and Simplification Proposal Published

The SEC published its proposed rules to extend the benefits of the current optional disclosure and reporting requirements for smaller companies to a much larger group of companies.  The proposal would allow companies with a public float of less than $75 million to qualify for the smaller company requirements (up from the current $25 million for most companies).  The SEC states that of the 11,898 companies that filed Annual Reports in 2006, 4,976 of them (or 42%) had a public float of less than $75 million.  The proposed rules would also maintain the current scaled disclosure requirements in Regulation S-B, but integrate them into Regulation S-K and eliminate the Commission's "SB" forms.  The SEC expects that these changes will simplify regulation for smaller businesses, reduce costs, and mitigate the reported lack of market acceptance associated with smaller filers.  These proposals stem from the recommendations of the Advisory Committee on Smaller Public Companies. 

July 6, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Former Fannie Mae CEO Sues Over Stock Award

Franklin Raines, former CEO of Fannie Mae, filed suit challenging the Office of Federal Housing Enterprise Oversight's power to delay the receipt of last month's award of 58,812 shares worth $3.9 million.  The agency has sought more information on how the board determined the number of shares awarded to Raines and other executives.  The stock awards are pegged to the company's performance from 2003-2006, including the period when earnings were misstated and regulators allege the company was mismanaged.  Raines left Fannie Mae in 2004.  See WPost, Raines Sues OFHEO Over Stock.

July 6, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Exchange-Traded Derivatives Drive Mergers

Three-quarters of the combined profits of the seven publicly traded exchanges in this year's first quarter came from developing and trading exchange-traded derivative products -- not trading stocks.  This, according to the Wall St. Journal, explains the merger mania among exchanges, as an exchange wants to acquire another exchange's financial derivatives.  For a complete history of financial derivatives, going back to classical Greece, see WSJ, Inside Exchanges' Race To Invent New Bets.

July 6, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Heavy Pre-Announcement Trading in Hilton Stock

Was there inside trading in Hilton shares before its announcement on Tuesday that Blackstone would buy the hotel chain?  There was heavy pre-announcement trading in the stock and call options.  See WPost, A Spurt Precedes Hilton's Sale; WSJ, Hilton Options Deliver Payoffs.

July 6, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Thursday, July 5, 2007

Doesn't Everyone Know This Stuff?

An excerpt from Remarks Before the Stanford Law School Directors' College 2007 by Linda Chatman Thomsen, Director, Division of Enforcement, SEC, on June 26, 2007:

My favorite example of our leaky memories comes from a 2005 episode of Jeopardy. ... Anyway, it was a Tournament of Champions and the final Jeopardy answer was: “CEOs must personally certify their corporate books following a July 2002 law named for these two men.” Two out of the three contestants in this, let me remind you, Tournament of Champions, answered McCain and Feingold. Only one guy got it right and he was Canadian.

July 5, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Auctioning Off Barneys

A few weeks ago I mentioned how stunned I was at the thought of that quintessential New York fashion icon, Barneys New York, being owned by a branch of the Dubai government.  Now I may have to reorient my thinking once again.  Fast Retailing, Japan's largest mass-marketer, announced that it made a $900 million offer, topping Istithmar's $825 million deal.  If Jones Apparel (owner of the Barneys New York division) breaks the deal, it will have to pay a termination fee of $20.6 million or $22.7 million, depending on the date.  See WSJ, Fast Retailing Offers $900 Million For Jones Apparel's Barneys Unit.

July 5, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

KKR Plans Post-IPO Strategy

KKR will use its $1.25 billion IPO to transform the private equity firm into an investment company that will compete with the big investment banks.  It also hopes to reduce its reliance on outside capital.  See WSJ, KKR's IPO May Set Firm On Rugged Path.

July 5, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Naked Short Selling Draws Attention to Stock Depository

How serious a problem is naked short-selling, and what can be done about it?  The SEC recently tightened the rules about delivery of shares after a sale.  But several companies that say they are victims of short-selling campaigns to drive down their stock price have sued Deposit Trust & Clearing Corp., charging that the depository has enabled short sellers to maintain large open "failure to deliver" positions.  In one recent suit, the SEC backed DTCC while NASAA filed a brief in support of the company.  Many believe more disclosure about how the system works is the answer.  See WSJ, Blame the 'Stock Vault'.

July 5, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Another Bond Offering Cancelled

Underwriters called off a $1.15 billion sale of bonds to pay for the ServiceMaster LBO.  Like other recent debt offerings, investors were unhappy with the payment-in-kind provision, which gives companies the option to make interest payments in additional debt.  See WSJ, ServiceMaster Shelves Bond Offering on Investor Nervousness.

July 5, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 3, 2007

SEC Seeks Emergency Relief Against Alleged Fraudulent Offering of Notes

The SEC announced that today it filed an expedited enforcement action against The Hockey Barn LLC and Jeffrey J. Coleman, Hockey Barn's Chief Executive Officer, in the United States District Court for the Western District of New York. In the complaint, the Commission alleged that from approximately October 2006 through the present, Coleman and the Hockey Barn defrauded investors through an offering of promissory notes and other investment contracts. Among other things, Coleman falsely told investors that they could obtain a return of at least 400% within 60 days from an investment in a purported bond trading program.

July 3, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Alleges Phony Tender Offer Scheme

On June 29, the SEC filed a civil injunctive action in the U.S. District Court for the Southern District of New York against  Theodore Roxford   (a/k/a   Lawrence   David   Niren)   and   the   partnership Hollingsworth, Rothwell & Roxford (HRR).  The  Commission's  complaint alleges  that, beginning  in  January  2003,  Roxford  and   HRR made a  series  of  bogus  offers  to acquire publicly-traded companies for the purpose of manipulating  the price of the companies' stock. The  Commission  is  seeking  permanent injunctions  and  civil  monetary  penalties   for   the   defendants' violations of the tender offer and market manipulation  provisions  of the federal securities laws.  Specificallly, the SEC alleges that Roxford made  false  and materially misleading statements in connection with  purported  tender offer  announcements  for  five  publicly-traded  companies   -   Sony Corporation, Zapata  Corporation,  Edgetech  Services,  Inc.,  Playboy Enterprises, Inc., and PeopleSupport, Inc.  and made  misrepresentations to the public regarding the existence of financial  backers  or  banks that supposedly were interested in financing the tender  offers.  Roxford and HRR  publicized  the  phony offers through press releases, internet message board postings, and in at least one filing with the Commission.

July 3, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Will Consider Antifraud Rule for Advisers to Pooled Investment Vehicles


The Commission will consider whether to adopt  a  new  antifraud  rule under Section 206 of the Investment Advisers Act of 1940. The new rule would prohibit advisers to certain  pooled  investment  vehicles  from making false or misleading statements  to,  or  otherwise  defrauding, investors or prospective investors in those pooled vehicles.

July 3, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Seeks Comment on Proposal to Eliminate Reconciliation Requirement for Foreign Private Issuers

The SEC issued a press release, announcing the publication for public comment of a proposal to eliminate the current requirement that foreign private issuers filing their financial statements using International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board (IASB) also file a reconciliation of those financial statements to U.S. Generally Accepted Accounting Principles (U.S. GAAP). The Commission voted unanimously on June 20, 2007, to issue the proposal for public comment.

SEC staff also published a report noting some general observations about the application of IFRS based on staff reviews of annual reports from more than 100 foreign private issuers containing financial statements prepared for the first time using IFRS. The agency has launched a new Web page that consolidates SEC staff correspondence on those completed filing reviews as well as company responses to the comment letters.

Under the SEC's current rules, foreign private issuers are required to reconcile to U.S. GAAP the financial statements that they file with the Commission if their financial statements are prepared using any basis of accounting other than U.S. GAAP.

July 3, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Charles Schwab Plans Cash Distribution

Charles Schwab Corp. plans to distribute $3.5 billion to its shareholders in a stock buyback and one-time dividend.  It will pay up to $22.50 per share (about 10% above market price) -- the price to be set by auction -- for 84 million shares owned by the public and then purchase up to another 18 million shares from Charles Schwab to maintain his percentage ownership at 18%.  It will also pay a $1 per share dividend.  The company recently sold its wealth management company for $3.3 billion.  See NYTimes, Schwab Plans Buyback and Dividend; WSJ, From Schwab, a $3.5 Billion Hint

July 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Another Hedge Fund Plans IPO

Och-Ziff Capital Management, a $26.8 billion hedge fund, filed for a $2 billion IPO.  It is described as the first "pure-play" American hedge fund to seek public financing.  According to the Wall St. Journal, every large hedge fund is now considering a public financing.  Och-Ziff's stock will trade on the NYSE.  Blackstone, which went public at $31, is currently trading below $30.  See NYTimes, Hedge Funds Continue Public Path; WSJ, A Bustle Grows On Hedge Row:The IPO Allure.

July 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

NetSuite Plans IPO

NetSuite, which offers web-based services to small and medium-sized businesses, plans an IPO to raise $75 million.  NetSuite is a potential competitor of Oracle; 74% of its shares are owned by Larry Ellison, founder, CEO, director, and 20% shareholder of Oracle.  In addition, NetSuite's CEO and chief technology officer are former Oracle executives.  Ellison himself stepped down from the NetSuite board.  See WSJ, NetSuite Stake May Prove Tricky for Ellison.

July 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Monday, July 2, 2007

SEC Announces $37 Million Fair Fund Distribution to Columbia Funds Investors

The SEC today announced a $37 million Fair Fund distribution to more than 300,000 investors who were harmed by fraudulent mutual fund market timing in the Columbia Funds between 1998 and 2003.  The distribution is the first in a series of disbursements from the Fair Fund that will distribute a total of approximately $140 million to more than 600,000 affected Columbia Funds account holders. The Fair Fund resulted from a Commission enforcement action charging unlawful conduct by Columbia Management Advisors, Inc. (the adviser to the Columbia Funds) and by Columbia Funds Distributor, Inc. (the Fund's underwriter and distributor) by entering or allowing arrangements for undisclosed market timing in the Funds.

July 2, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Files Accounting Charges Against Former Veritas Software officers

The SEC today filed civil fraud charges against  five former officers of Veritas Software Corporation. The  SEC's  complaint alleges that the defendants artificially inflated and/or intentionally manipulated and distorted  Veritas'  reported  financial  results  and misled Veritas' independent auditors. The complaint alleges that, as a result  of  this  misconduct,  Veritas  filed  false  and   misleading financial statements from 2000 through 2002.  The individuals charged in  the  complaint  include  Mark  Leslie, former chairman and chief executive officer, and Kenneth E. Lonchar, former chief financial officer.  The allegations involve an alleged fraudulent  scheme to artificially inflate Veritas publicly reported revenues and earnings  through  an improper round-trip transaction with America Online, Inc.

July 2, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (1)

SEC Settles Accounting Charges Against Former ConAgra Officers

The SECC today filed settled civil actions in federal district court against former executives of ConAgra Foods, Inc., (ConAgra) and also  instituted settled administrative proceedings and filed settled  penalty  actions other executives. These  enforcement  actions  address a number of alleged  improper  accounting  practices,  inaccurate  disclosure  and income tax errors occurring between ConAgra's fiscal  years  1999  and 2005 that resulted in  ConAgra  materially  misstating  its  financial performance in its public statements and  periodic  filings  with  the Commission.

July 2, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)