It’s a pretty sure sign that securities regulators do not have enough to do when they are busy trying to protect the likes of Carl Icahn.
As noted in this earlier post, Icahn was outmaneuvered in late 2004 by New York-based Perry Corporation in connection with Mylan Laboratories’ bid for the generic drug maker, King Pharmaceuticals. Icahn — who owned a bit less than 10% of Mylan — pursued his typical strategy of attempting to extract some ransom from Mylan’s takeover bid by opposing the company’s bid for King.
But Perry’s moves in connection with the proposed deal made Icahn look totally 1980’s in comparison. Perry owned a big chunk of King shares and would have made around $28 million if Mylan’s bid had been successful. However, in making its play, Perry set up an elaborate swap trade with Bear Stearns and Goldman Sachs so that the block of Mylan’s voting equity that Mylan controlled (which was just a tad larger than Icahn’s) had limited exposure to fluctuations in Mylan’s share price. Perry accomplished this by buying its stake in Mylan while having Bear Stearns and Goldman Sachs “short” the same number of shares.
Well, as the earlier post indicated, Perry’s moves outraged Icahn, who filed a lawsuit and started sounding as if he was the spokesman for CALPERS’ shareholder activist committee. Alas, Mylan’s bid for King collapsed, Icahn dropped his lawsuit and most folks thought that was the end of the entertaining match of wits between well-heeled investment types.
But not so fast. Perry disclosed to its investors this week that the SEC recently sent a Wells notice to Perry informing the hedge fund that the agency is considering a civil enforcement action over the fund’s Mylan-King hedging strategy. According to Perry’s disclosure, the SEC’s enforcement division is recommending that the agency accuse Perry of violating the antifraud provisions of securities laws, which require large investors to disclose pertinent financial information about their holdings. Perry is currently preparing a response to the Wells notice — called a “Wells submission” — in which the firm will challenge the basis of the SEC’s proposed action against the firm. That’s not surprising given that Perry’s hedging strategy in regard to Mylan-King deal was utterly transparent and reported in the business sections of virtually every major media outlet.
In the meantime, however, we can all rest more comfortably with the knowledge that the SEC is protecting Mr. Icahn. He has created a tremendous amount of shareholder wealth over his long career. It’s nice to see that the SEC is actively protecting him in his twilight years when he really needs it. ;^)