Have activist investors been in cahoots to get their agendas across? The SEC thinks so.
The SEC’s enforcement division has opened multiple investigations and sent requests for information to a number of hedge funds, to examine whether activist investors colluded to target companies without disclosing their alliances, the Wall Street Journal reports. The names of the hedge funds and allegedly targeted companies were not disclosed.
Federal regulations require investors to file disclosures when they team up to buy, sell, or vote securities, and to designate themselves as a group if they own a combined 5% or more of a company’s stock or are soliciting votes from other shareholders. The rule is meant to level the playing playing field with smaller shareholders. The practice of activists tipping off hedge fund allies to their trading plans isn’t illegal as long as they don’t coordinate trades.
The SEC’s pursuit of activist investors is relatively new, as the regulatory body has traditionally taken more of a hands off approach to activist investors. In March, the SEC charged eight corporate insiders for neglecting to update their stock ownership filings to show steps they had taken towards buying the companies in question. Bulldog Investors co-founder Phil Goldstein defended his fund over an SEC inquiry, denying that Bulldog had teamed up with Foundation Asset Management to take on Stewart Information Services:
“If you go to a Grateful Dead concert, you’re going to find a lot of Grateful Dead fans,” he said. “They’re not a group. They just like the same music.”
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