Not sure if anyone has seen thins but it is a must read.
Judge Lewis Kaplan opens with Read the whole document at the link:
“Some people deliberately go close to the line dividing legal from illegal if they seea sufficient opportunity for profit in doing so. A few cross that line and, if caught, seek to justify their actions on the basis of formalistic arguments even when it is apparent that they have defeated the purpose of the law.
This is such a case. The defendants – two hedge funds that seek extraordinary gain,
sometimes through “shareholder activism” – amassed a large economic position in CSX Corporation (“CSX”), one of the nation’s largest railroads. They did so for the purpose of causing CSX to behave in a manner that they hoped would lead to a rise in the value of their holdings. And there is nothing wrong with that. But they did so in close coordination with each other and without making the public disclosure required of 5 percent shareholders and groups by the Williams Act, a statute that
was enacted to ensure that other shareholders are informed of such accumulations and arrangements.
They now have launched a proxy fight that, if successful, would result in their having substantial influence and perhaps practical working control of CSX. Defendants seek to defend their secret accumulation of interests in CSX by invoking
what they assert is the letter of the law. Much of their position in CSX was in the form of total return equity swaps (“TRSs”), a type of derivative that gave defendants substantially all of the indicia of stock ownership save the formal legal right to vote the shares. In consequence, they argue, they did not beneficially own the shares referenced by the swaps and thus were not obliged to disclose sooner
or more fully than they did. In a like vein, they contend that they did not reach a formal agreement to act together, and therefore did not become a “group” required to disclose its collaborative activities, until December 2007 despite the fact that they began acting in concert with respect to CSX far earlier. But these contentions are not sufficient to justify defendants’ actions.”
This is a must read because it goes to disclosure. Hedge funds are constantly all over management (for the good of all) to be more transparent. But actions such as those by TCI, while technically legal, smack of hypocrisy. The same goes to short sellers who are short but refuse to disclose how short they are because “they are not legally required to”.
Disclosure is disclosure and if it is good for some it has to be good for all. It cannot be a piece by piece game. Personally I think if you can be short through ownership of puts and be forced to disclose it then if you have sold shares short you ought to be forced to disclose it also.
If you are acquiring interest via swaps, the same ought to hold. On cannot hold the management of a company to a higher standard than themselves and then stand their a “tisk tisk” management for not “disclosing fully”.
Disclosure (“none” means no position):None
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