Bill Ackman (Illustration by Insider Monkey)
It’s no accident that Pershing Square chief Bill Ackman used the Securities and Exchange Commission’s beneficial ownership reporting requirements to his advantage in his joint bid with Valeant for Allergan. As Bloomberg reported Tuesday, Ackman was the ringleader three years ago of a full-court press to keep the rules just as they are.
Current rules provide that investors who buy 5 percent or more of a company have 10 days to report that fact to the SEC. Though in 2010, Bloomberg noted, the SEC gained the flexibility through the Dodd-Frank Act to shorten that 10-day window, in 2011 Ackman “recruited a group of large investors” who persuaded the SEC to leave the rule alone, even though there were indications that the SEC thought it should move to shorten it.
“Because there were strong voices of dissent from credible quarters, I think it made everybody pause,” Scott Kimpel, a partner at Hunton & Williams LLP who worked at the SEC until 2012, told Bloomberg. “If nobody thought it was a bad idea, it probably would have been done by now.”
Attorneys at Wachtell, Lipton, Rosen & Katz, a bastion of corporate defenses, have repeatedly argued that the 10-day window should be shortened, claiming that it’s too long in an era of instant communication through e-mail.
“You don’t have to send a messenger to Washington anymore—it’s a very simple and computerized and transparent thing,” Adam Emmerich, a Wachtell partner, told Bloomberg.
Wachtell in 2011 had officially petitioned the SEC to make changes to beneficial reporting rules, including a shortening of the reporting window, to one business day, as well as expansion of the kinds of securities that would count toward qualifying beneficial ownership (derivatives as well as more traditional forms of equity).
Hedge funds and other major investors, Bloomberg reported, began lobbying the SEC following Wachtell’s petition for rulemaking. The participants, aside from Pershing Square, included Jana Partners, BlackRock, T. Rowe Price, and TIAA-CREF, Bloomberg noted, citing an anonymous source with knowledge of the meetings.
Stephen Brown, who was then a senior director at TIAA-CREF, and is now chief executive of the Society of Corporate Secretaries and Governance Professionals, told Bloomberg that institutional investors, as well as hedge funds, urged circumspection around any change.
“There were investor folks in the room other than hedge funds that were very adamant [the system] wasn’t broken, and changing the rules would benefit issuers to the detriment of certain institutional investors,” Brown told Bloomberg.