July 22, 2009

Summer Issue: “Proxy Disclosure Updates” Newsletter

Summer Issue: “Proxy Disclosure Updates” Newsletter

On, we have just posted a complimentary copy of the Summer 2009
issue of the “Proxy Disclosure Updates” which analyzes how
the latest proxy disclosures looked, particularly noteworthy in the wake
of ARRA, EESA and the other regulatory responses to the crisis. This valuable
quarterly newsletter is part of the Lynn, Borges & Romanek’s “Executive
Compensation Annual Service.” The other part is the 1000-plus page Treatise…

Coming Soon: 2010 Executive Compensation
Disclosure Treatise and Reporting Guide
: Now that we have seen the SEC’s
proposals and Treasury’s legislation – that will force you to radically change
your executive compensation disclosures and practices before next proxy season
– we are wrapping up the ’10 version of Lynn, Borges & Romanek’s “Executive
Compensation Disclosure Treatise and Reporting Guide,” which we will deliver to
subscribers by early October.

Act Now for $100 or More
: To obtain this hard-copy ’10 Treatise when its printed in October
(as well as get online access to the ’09 version right now on, as well as the valuable
quarterly “Proxy Disclosure Updates“), you need to try a no-risk
to the Lynn, Borges & Romanek’s “Executive Compensation
Annual Service” now. If you order now, you can take advantage of
a $100 or more discount.

Will Facebook Sidestep Google’s Pre-IPO Problems?

Google certainly has had a nice run since its novel Dutch-auction IPO. But for those with good memories, you might recall that Google had to make a rescission offer about the time of its IPO because Google apparently crossed the Section 12(g) threshold well before its IPO and should have registered its common stock under the ’34 Act at that time (companies that have more than 500 shareholders and $10 million in assets at calendar year end must register under Section 12(g)).

In reading this WSJ article last week about how Digital Sky Technologies is taking a stake in Facebook by purchasing shares from current and former Facebook employees, I saw the disclosure that the number of current Facebook employees is now 850.  I hope the company doesn’t encounter the same issue that Google confronted, where it should have registered its shares sooner given the number of holders and that that Facebook is being valued at $6.5 billion based on Digital’s purchase campaign.

SEC Charges Investment Advisor for Buying Votes with Section 13(d) Violations

Yesterday, as noted in this press release, the SEC charged – and settled – Section 13(d) violations with an investment adviser – Perry Corp. – for failing to disclose that it had purchased substantial stock in a M&A target, King Pharma. Perry purchased the shares in order to vote them in favor of a merger from which Perry stood to profit. Here’s the cease-and-desist order, under which Perry agreed to pay $150,000.

The SEC was able to bring charges because the Mylan shares were not acquired by Perry in the “ordinary course of its
business,” which is one of the requirements of Rule 13d-1(b)(1). However, I was a little surprised that the SEC didn’t shoot Perry down by
finding that it either (i) did not acquire the shares in the ordinary course or (ii) was not “passive” (since “passive” is also a requirement of the rule). Instead, the SEC focused exclusively on the “ordinary course” requirement of the rule. 
So I wonder why the SEC didn’t use “not passive” as the hook and avoided the seemingly circuitous path
to “not in the ordinary course”? I would think the SEC could have made its case by stating that Perry was not passive –
and therefore could not be acting in the ordinary course. Let me know what you think.

By the way, the SEC’s charges unfortunately didn’t address concerns regarding Perry’s strategy. In an effort to lock in the merger premium it would receive on its holdings of King Pharma shares, Perry purchased a substantial block of the acquiror’s shares (Mylan) that it intended to vote in favor of the merger while contemporaneously entering into hedging transactions that minimized its economic exposure to a decline in the value of those Mylan shares.

In essence, Perry intended to vote its Mylan shares in favor of a transaction that was not in the economic interests of other Mylan shareholders because it had a more substantial economic interest in the merger being consummated as a result of its holdings in King Pharma. Similar issues arose in connection with AXA’s acquisition of MONY. 

Although this issue has received considerable attention in the US and the UK, no clear solution has been found. Rather, the focus has been on enhanced disclosure obligations. The SEC’s charges solely relate to Perry’s failure to file a Schedule 13D with respect to its acquisition of more than 5% of Mylan’s shares with the intent of influencing the direction or management of Mylan. Hopefully, manipulation of the voting process will be examined as part of the SEC’s plan to rethink the proxy plumbing this Fall. We have resources on share lending, overvoting, empty voting, etc. in our “Share Lending/Overvoting” Practice Area.

– Broc Romanek