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Univ. of Toledo College of Law

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Thursday, August 5, 2010

SEC Settles Allegations of Hoax Tender Offers for U.S. Corporations

The SEC has agreed to settle charges against the late Hazem Al-Braikan, a Kuwaiti financial advisor, and Al-Raya Investment Company involving an alleged scheme to profit by issuing hoax takeover announcements for Harman International Industries, Inc. and another company. According to the SEC, in July 2009, Al-Braikan drafted and issued a bogus press release claiming that a non-existent private investment group in Saudi Arabia planned to acquire Harman International through a tender offer. According to the allegations in the Amended Complaint, Al-Braikan fabricated the press release over the weekend of July 18-19, 2009, scouring the internet for an appropriate graphic logo for his fictional entity and preparing various drafts of the hoax release, which he then faxed or emailed to various news organizations in the U.S. and abroad. He also made dozens of calls to various media outlets in the U.S. and abroad in an attempt to convince them to pick up the story. On the morning of Monday, July 20, a U.S. Internet news website posted the false announcement, which claimed that an entity called "Arabian Peninsula Group" was planning to make a public tender offer for Harman stock at $49.50 a share. At the time, Harman International's common stock was trading at about $25 per share. The false announcement led to a pre-market trading surge that drove Harman International's stock up by nearly 40%. After Harman International repudiated the announcement an hour later, the company's share price dropped precipitously, closing the day at $20.86, more than twenty percent lower than the prior trading day's close. The Amended Complaint also alleges that Al-Braikan perpetrated a similar hoax using Textron Inc. in April 2009, contacting media outlets about an alleged "scoop" regarding an upcoming takeover bid for Textron by a Middle Eastern company. In actuality, no such deal existed.

The Amended Complaint alleges that Al-Braikan profited by amassing large positions in Harman and Textron stock and Harman options in accounts that he controlled during the days and weeks before he created and released the false tender offer announcements. He then sold those positions at prices inflated by the false information, reaping profits for himself and others. Al-Braikan traded in accounts in his own name and that of Al-Raya, as well as accounts for himself and others at KAMCO. He also recommended the stocks to others, who bought and sold on his recommendation. Profits on the two hoaxes totaled more than $6.2 million.

All of the parties have agreed to settle this action and give back all profits gained as a result of the illicit conduct.

http://lawprofessors.typepad.com/securities/2010/08/sec-settles-allegations-of-hoax-tender-offers-for-us-corporations.html

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