April 18, 2006

One Borrowed Share, But One Very Real Vote

This article from Sunday’s NY Times touches on the other half of the majority vote debate – what to type of integrity exists in today’s voting process now that votes in director elections could mean much more than they do today? The article parses a recent study entitled “Vote Trading and Information Aggregation” from a group of professors that found, over a two-year period, that there was a significant spike in the number of borrowed shares on the typical record date. And they found an almost-as-big decline in such shares, on average, the day after those record dates. In their opinion, the only plausible explanation is that traders borrowed shares solely to acquire votes.

This is not “new” news really, as there have been reports going back a while of funds buying votes without economic risk. In fact, when was launched at the end of 2004, one of the first queries in that Q&A Forum (ie. #3) dealt with the ability of such a hedge fund to use Schedule 13G (as opposed to Schedule 13D) when such an arrangement resulted in the fund holding more than 5% of a company’s stock.

What About Overvoting?

Interestingly, the NY Times article (and the study) doesn’t delve into the topic of overvoting – a topic that I was interviewed about last year (see this related blog). This issue and more surely will draw more scrutiny of the voting process, which may very well be tested in court when director elections are too close to call under a majority vote standard.

My Ten Cents on the SEC’s Journalist Subpoena Saga

I know the First Amendment is important, even more so now that I call myself a “journalist” when folks ask what I do for a living (and if you ever lived in DC, you know that is the first question you get asked at a cocktail party). But I still can’t believe how much press was given to the SEC’s new policy regarding journalist subpoenas – since Chairman Cox first noted that the policy was forthcoming a month ago, I must have read two dozen articles about the topic.

As this NY Times article noted last Friday, “Before the Gradient inquiry, officials said they could recall no other instances of subpoenas of journalists other than in some well-known insider trading cases involving journalists in the 1980’s and 1990’s. In those cases, unlike the Gradient inquiry, the reporters were the subjects of the investigation.” Sure sounds like the SEC’s Enforcement Division wasn’t abusing their power in this area…at least not before the latest hubbub (which, depending on what really happened, appears to an isolated case at most).