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

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Wednesday, September 3, 2008

Tracinda Settles Charges It Violated Section 13(d) in Sales of GM Stock

The SEC instituted proceedings against Tracinda Corporation for violations of the reporting provisions of Section 13(d) of the Securities Exchange Act of 1934 concerning its plan and proposal to sell General Motors shares in 2006. Simultaneously with the institution of the proceedings, Tracinda, without admitting or denying the findings in the order, consented to the entry of an SEC cease-and-desist order.

According to the order, on Nov. 16, 2006, Kirk Kerkorian, the sole shareholder and director of Tracinda, met with his advisors to discuss Tracinda's significant investment in GM. In that meeting, Tracinda's key advisor expressed his view that the price of GM stock would likely fall in the future. This led to a discussion as to whether Tracinda should sell half (28 million shares) of its GM holdings.  The order further finds that, on Nov. 20, 2006, Tracinda offered to sell 28 million shares of GM stock to a broker-dealer. That firm was willing to buy 28 million shares, but only at a significant discount to the then-current market price. Tracinda was not willing to sell at that price at that time but requested a bid on 14 million shares. The price was higher for 14 million shares and Tracinda executed the transaction that day. Subsequently, on Nov. 28, 2006, Tracinda sold an additional 14 million shares of GM to another broker-dealer.

On Nov. 22, 2006, Tracinda filed an amendment to its Schedule 13D announcing the sale of 14 million shares of GM stock. In that filing, Tracinda did not disclose that it had a plan to sell half of the GM shares it owned or that it had made a proposal to sell 28 million GM shares. Tracinda violated Section 13(d)(2) of the Exchange Act and Rule 13d-2(a) thereunder, because the amendment that was filed did not disclose the plan and proposal to sell 28 million shares of GM stock and no other amendment was promptly filed to disclose this material change to a previously filed Schedule 13D. In addition, according to the SEC, that amendment was materially misleading because it stated that Tracinda might purchase or sell more GM stock, when there was only a remote possibility that it would buy any GM stock at that time

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