July 24, 2007
Hartford Group Settles Market-Timing Charges
The Hartford Financial Services Group announced that it had settled charges involving market-timing and other improper practices with state regulators. It will pay $115 million, including $84 million to investors harmed by the practices. It also said the SEC had closed its market-timing investigation without bringing charges. NYTimes, Hartford Group Pays $115 Million to Settle a Claim of Illegal Trading; WSJ, Hartford Settles 'Market-Timing' Cases.
Allison LBO Postponed
In another sign of difficult conditions in the debt-financing market, the LBO of Allison Transmission (a GM unit) to two private equity firms was postponed because of problems in selling the $3.1 billion in bonds to pay for the deal. WSJ, GM's Allison Hits a Financing Snag.
Expedia Reduces Size of Stock Buyback
Expedia scaled back its stock repurchase plan, from 116.7 million shares (more than one-third of the outstanding shares) to 25 million shares, citing the cost of borrowing. WSJ, Expedia Is Knocked for a Loop; NYTimes, Expedia Reduces Its Buyback Plan
July 23, 2007
Commissioner Atkins on SEC's New Fraud Rule For Advisers to Pooled Investment Vehicles
In his Remarks at the July 11 SEC Open Meeting: An Antifraud Rule For Advisers To Pooled Investment Vehicles, Commissioner Paul S. Atkins disagreed with the text of the SEC press release that stated that the new Rule is negligence-based:
If implemented properly and reasonably, this rule will be a benefit to investors and the marketplace. If, on the other hand, we overreach and turn this rule into nothing more than a negligence-based rule designed to make a federal case out of unintentional mistakes, it will advance no one's interests, and the rule may well end up to be the subject of a legal challenge that will test the bounds, and our interpretation of Sections 206(4) and 15(c)(2).
Chair Cox's Statement on SEC Terrorism Link
For those wishing to read Chair Cox's statement about why the SEC took down the controversial link that was supposed to help investors become informed about companies that were doing business with state sponsors of terrorism, see Statement by Securities and Exchange Commission Chairman Christopher Cox Concerning Companies' Activities in Countries Known to Sponsor Terrorism.
Bancroft Family Meets to Consider Murdoch's Offer for Dow Jones
Members of the Bancroft family will hold a meeting today in Boston to discuss the News Corp's offer to buy Dow Jones. They are expected to take several days to think over the deal; Rupert Murdoch has said he expects the family to decide promptly. At $60 per share, their entire shareholdings are worth more than $1.2 billion, compared to less than $750 million before the bid. If the public shareholders overwhelmingly approve the deal, it may be that less than one-third of the Bancroft family votes are needed to approve the deal. NYTimes, A Family Meets Today to Hear the Complexities of a Bid for Dow Jones.
Cerberus and United Rentals Expected to Announce Deal
Cerberus Capital Management and United Rentals are expected to announce that Cerberus will acquire the largest equipment-rental company for $4 billion ($34.50 per share). United Rentals announced in April that it was looking for a buyer. Reports that the private equity deals are over may be premature. WSJ, Cerberus Nears Deal for United Rentals.
July 22, 2007
Thel on Free Writing
Free Writing, by STEVEN THEL, Fordham University - School of Law, was recently posted on SSRN. Here is the abstract:
In 2005 the SEC effectively ended most restrictions on the use of written offering materials in public distributions of securities. Previously, the only written offering materials permitted were terse announcements and dense statutory prospectuses. Less formal written offering material, known as free writing, could be distributed at the end of the offering process but only to people who had previously been sent a copy of the final statutory prospectus
Under the Commission's new regime, all sorts of written offering material may be distributed much earlier in the process. Offering participants are now permitted to communicate with a new disclosure device - modeled on free writing - called the free writing prospectus. They may now, from a very early date, disseminate free writing prospectuses - containing almost any kind of information in whatever form they choose - and often without any requirement that they deliver a statutory prospectus at all.
Free writing is not subject to liability under section 12(a)(2) of the Securities Act, but free writing prospectuses are. This paper shows that the exemption of free writing from liability, generally taken to be a drafting error, operates as a carrot to encourage security sellers to disseminate statutory prospectuses. Noting that security sellers have been reluctant to use free writing prospectuses broadly because of liability concerns, it then argues that free writing prospectuses containing false statements should not be subject to liability under section 12(a)(2) unless they are widely distributed before a final statutory prospectus is available. This conclusion does not depend on any particularly controversial view of market efficiency or morality, but follow from the premises that led the SEC to permit free writing prospectuses in the first place. Moreover Congress recognized as much in 1933 when it exempted free writing. Despite substantial questions about the rulemaking authority that the SEC relied upon to allow the use of free writing prospectuses and to extend liability for their use to issuers in firm commitment offerings, it does have authority to exempt them from section 12(a)(2). The paper concludes with a reexamination of Gustafson v. Alloyd Co.
Gordon on The "Prudent Retiree Rule"
The 'Prudent Retiree Rule': What to Do When Retirement Security is Impossible? , by JEFFREY N. GORDON, Columbia Law School, was recentlly posted on SSRN. Here is the abstract:
Policy debates about the appropriate risk levels for individual retirement plans and social retirement plans (like social security) often pay insufficient attention to the inescapable trade-off between “payment risk” (the risk of insufficient funding for anticipated benefits) and “short fall risk” (the risk of insufficient benefits for a satisfactory retirement). Thus a “prudent retiree rule” would permit a prudent level of “contingent funding” of retirement payouts. Contingent funding - basing benefit expectations on funding sources that may not materialize - increases payment risk, yet pension systems without some contingent funding will produce inferior benefits in most states of the world, increasing shortfall risk. Contingent funding can take different forms: underfunding (in an actuarial sense) of defined benefit promises, which means reliance on the firm's continued profitability; a tilt toward equity investments in a defined contribution plan, including an appropriate level of employer own stock, and reliance on pay-as-you-go (PAYGO) funding of social security benefits in which each generation funds its predecessor's benefits. The case for the prudent retiree rule is strengthened through a better appreciation of the underlying risks to retirement security: demographic risk (too many retirees relative to workers); economic risk (insufficient economic growth) and distributional risk (non-effort-based individual economic outcomes). Policies that address these risks can significantly reduce the risks associated with contingent funding.