December 27, 2006

Problems with PIPEs

More and more members are e-mailing me their stories (or posting their queries in the Q&A Forum) regarding their challenges in getting a PIPEs registration statement processed by Corp Fin. Today’s WSJ includes this article about how the Staff is “increasingly reluctant to sign off on transactions involving “private investments in public equity.”

Deputy Director Marty Dunn is quoted as follows: “We have not told anyone that they cannot do these deals, we’ve just told them that they have to register them appropriately.” Mr. Dunn says SEC staffers hope to provide clarification early next year on when registrations for shares issued in connection with PIPE transactions may be done in a secondary offering, and when a primary offering would be needed.

As the article notes, it doesn’t help that the Enforcement Division is having success finding insider trading involved in some of these deals. The D&O Diary Blog covers the latest Enforcement developments regarding PIPEs – and the “SEC Actions Blog” has an interesting discussion of the latest Enforcement case against Friedman Billings Ramsey that involves a unique theory.

Problems with Empty Voting

From ISS’ “Corporate Governance Blog”: Reuters ran an article recently entitled “MergerTalk: Hedge Funds Find New Ways to Sway Votes,” which looks at the practice of empty voting. The practice of “empty voting” entails borrowing shares prior to a record date, which then gives the borrower the voting rights. Once the record date has passed, the borrower returns the shares and effectively controls a large number of votes without a continuing economic interest. Some critics say this creative share borrowing is being done to manipulate voting outcomes and seriously undermines corporate governance transparency for large shareholdings.

The story specifically cited hedge fund’s ability to purchase over-the-counter (OTC) equity swaps, obtaining large blocks of shares for voting without any true ownership. Holders are also not required to disclose their current assets in OTC swaps, nor are the banks that structure the swaps. Henry Hu, a University of Texas Law Professor, recently came out with a study on the practice of share lending and empty voting and is advocating fixing the disclosure system to make this practice more transparent.

Industry and academic focus is growing on instances where manipulating the vote is the objective, but similar problems can exist through normal sharelending, even if the motivation is benign. What are your thoughts on the practice of share lending and its impact on voting as well as the practice of “empty voting”…widespread problem or an anomaly to be watched?

A Boom Year for Mergers and a Furious Pace for Law Firms

On Friday, the NY Times ran this article about how busy law firms were doing deals this year. It notes the impact this has had on associate bonuses and quotes one partner on how he recently had to do his first all-nighter. Geez, I did all-nighters pretty regularly when I was at my law firms (and even do them occasionally in this job). My favorite quote was from Peter Lyons: “If you’re an M.& A. lawyer and you’re not busy now, it’s time to find something else to do for a living.”