Thursday, February 8, 2007
Delaware Chancellor Chandler refused to dismiss a derivative suit against the board of Maxim Integrated Products claiming breach of fiduciary duty based on backdating stock options, stating: "I am convinced that the intentional violation of a shareholder approved stock option plan, coupled with fraudulent disclosures regarding the directors' purported compliance with that plan, constitute conduct that is disloyal to the corporation and is therefore an act in bad faith." Previous cases, in other jurisdictions, have supported defendants. See WSJ, Maxim Ruling Opens Door For Backdating Cases.
Yesterday Equity Office Property Trust shareholders approved Blackstone's $39 billion bid in the largest LBO to date, after rival bidder Vornado walked away. The NY Times says the deal "encapsulates two of the hottest trends in deal-making: the wave of capital flooding into commercial real estate and the growing power of private money." Its story focuses on the three key players: Sam Zell (EOP), Steve Roth (Vornado) and Steve Schwarzman (Blackstone). See NY Times, Takeover Battle Ends With Sale of Big Landlord. The WSJ has two stories on the LBO -- Blackstone Deal May Jolt Market for Office Space focuses on ramifications in the real estate market, and How Blackstone Won a Prize reiterates the theme of this LBO's coverage -- the power of private equity firms.
Deposed CEO of Fannie Mae Franklin D. Raines' request to accelerate the administrative hearing on charges that he manipulated earnings was rejected as an "absurdity" by the administrative law judge, who also told his lawyers to include precedent that was contrary to the position they were arguing. The trial is expected to begin at year's end. See Washington Post, Judge Rejects Raines's Request to Accelerate Trial Date.
Wednesday, February 7, 2007
The SEC has proposed rules to implement the Credit Rating Agency Reform Act of 2006, which will establish a regulatory program for credit rating agencies that choose to be recognized as nationally recognized statistical rating organizations. For a description of the proposed rules by the Director, Division of Market Regulation, see Proposed Rules Implementing the Credit Rating Agency Reform Act of 2006.
The SEC filed an insider trading action in U.S. District Court for the Northern District of Texas against Donald A. Erickson, former audit committee chairman and a former director of Magnum Hunter Resources, Inc. (MHR). The Commission alleges that Erickson engaged in unlawful insider trading in the securities of MHR ahead of the January 26, 2005 announcement of merger between MHR and Cimarex Energy Company.
NYSE Regulation announced disciplinary action against the former President of specialist firm Fleet Specialist, and others, in connection with the activities of its floor traders, who stepped in front of customers' trades for profit. The honesty and integrity of the trading floor is of utmost importance both to the market and to investors,” said Susan Light, senior vice president of Enforcement, NYSE Regulation. “NYSE Regulation has vigorously pursued disciplinary actions against specialists and clerks, as well as their supervisors, who abused the public trust and disadvantaged customer orders. Supervisors who have been notified of misconduct must thoroughly review each situation and take appropriate action.”
Equity Office Property Trust shareholders voted to approve Blackstone's bid to acquire the REIT for $23 billion in cash. Earlier today, Vornado withdrew from the contest. The deal is expected to close later this week and will be the largest LBO. See WSJ, Equity Office Shareholders Approve Sale to Blackstone.
NYSE regulators brought charges against eleven current or former employees of floor-trading speclalist firms for profiting by stepping in front of customers' trades. This brings to 35 the people charged in this three-year long investigation. Some of the employees were acquitted of criminal charges. See WSJ, NYSE Pursues 11 at Specialist Firms In Improper-Trades Case.
The WSJ follows up on a story the NY Times broke yesterday -- that the SEC is investigating a dozen Wall St. firms for providing favored customers with information about big trades. Mutual funds have complained that confidential information about their trades were leaked. The article quotes Lori Richards, director of the SEC's office of Compliance, Inspections, and Examinations: the agency is looking at the "passage of information from one firm to another," and that "It's just fact-finding at this point." See WSJ, SEC Boosts Probe for Wall Street Leaks.
Two former AOL employees were acquitted of criminal charges that they helped a client, PurchasePro, post fictitious revenues. The trial lasted four months in Alexandria, Va. Purchase Pro's lawyer was acquitted in an earlier trial. See Washington Post, 3 Acquitted In Lengthy AOL Trial
The SEC filed charges against two former officers of Engineered Support Systems, alleging that they engaged in a five-year long practice of backdating stock options. See NY Times, S.E.C. Files Suit in Options Case and WSJ, SEC Alleges Fraud at DRS Unit, and the SEC press release.
Equity Office Property Trust shareholders will vote today on Blackstone's bid to acquire the REIT at $55.50 per share, as Vornado remained silent in the face of the higher bid. It is billed as the largest LBO. See NY Times, Shareholder Vote Today Could Settle Fight for Office REIT and WSJ, In Equity Office Battle, a Matter of Scale.
Tuesday, February 6, 2007
A federal district court in S.D. Texas held that shareholders could sue the corporation for allegedly misleading statements in the company's preliminary proxy statement prepared in connection with a proposed merger, because it fell within the "Delaware carveout" exception to SLUSA. The court held that the preliminary proxy materials, which were available on the SEC website, constituted "communications ... made by the issuer to its equity security holders" for purposes of the Delaware carveout: "In this day and age, the act of posting information on the internet, making the data available to the public, is tantamount to "communication.... Merely because a copy of the preliminary proxy statement is not physically mailed to shareholders does not exclude it from being a 'communication.' " Superior Partners v. Chang, 2007 WL 101848 (S.D. Yex. 01/08/07).
The SEC announced that it was proposing amendments to expand its interactive data voluntary reporting program to permit mutual funds to submit as exhibits to their registration statements supplemental tagged information contained in the risk/return summary section of their prospectuses. The risk/return summary section contains key mutual fund information, including investment objectives and strategies, risks, and costs. (Rels. 33-8781; IC-27697)
The SEC filed settled securities fraud charges against RenaissanceRe Holdings Ltd. (RenRe), a property catastrophe reinsurance company, for creating a sham reinsurance transaction that had no economic substance and no purpose other than to smooth and defer over $26 million of earnings from 2001 to 2002 and 2003. In effect, the transaction enabled RenRe to create a "cookie jar" into which it put excess revenue in one good year, to be pulled out in a future year to increase income.
In settling the Commission's charges, RenRe agreed to an injunction, to retain an independent consultant, and to pay a $15 million civil penalty, among other things. See Reinsurer RenaissanceRe Settles Securities Fraud Charges for Sham Reinsurance Transaction.
Franklin D. Raines, former CEO of Fannie Mae, asserts a right to a "speedy trial" and wants the Office of Fair Housing Enterprise Oversight to proceed with its administrative hearing against him on Feb. 16 instead of later this year. He is charged with manipulating the company's earnings. See Washington Post, Fannie Mae's Former Chief Wants Earlier Hearing Date.
Merrill Lynch and Credit Suisse argued yesterday before the 5th Circuit Court of Appeals that the Enron class action suit was improperly certified as a class-action. It also argued that it could not be liable for securities fraud because it was not a direct participant in the fraud. The trial is set for April. See NY Times, Banks Appeal Ruling Allowing Enron Investors to Sue as Class.
Carl Icahn, who currently holds 16% of Lear, offers to buy the remaining shares for $36 per share, for a total of $2.4 billion. Another shareholder, Pzena Investment Management, says the price is too low for the auto parts supplier. See NY Times, Icahn Offers to Acquire Rest of Auto Parts Company .
Home Depot averted a proxy fight by entering an agreement with Relational Investors: David Batchelder, founder of Relational Investors, will go on the board and join the Audit and Compensation Committees, and four directors associated with the hiring of deposed CEO Nardelli will leave. See NY Times, Home Depot Proxy Fight Is Settled .