Washington, D.C., July 21, 2009 – LawFuel.com – The Securities and Exchange Commission today charged New York-based investment adviser Perry Corp. with securities law violations for failing to report that it had purchased substantial stock in a public company. Perry purchased the shares in order to vote them in favor of a merger from which Perry stood to profit.
The securities laws require institutional investors like Perry to report the acquisition and ownership of more than 5 percent of the common stock of a public company. The SEC’s order against Perry finds that the firm failed to disclose that it had acquired nearly 10 percent of the common stock of Mylan Laboratories, Inc. At the time, Mylan had announced a proposed acquisition of King Pharmaceuticals, Inc. that was subject to shareholder approval. Perry had entered into an investment strategy known as “merger arbitrage” and would profit from a Mylan-King merger. To increase the likelihood of the merger, Perry separately purchased the Mylan voting shares and entered into a series of “swap” transactions – hedging transactions through the use of derivative instruments – designed to avoid any financial exposure from its ownership of those shares.
“By acquiring significant voting rights to Mylan shares without informing the marketplace, Perry illicitly increased its potential to profit from its merger arbitrage position,” said David Rosenfeld, Associate Director of the SEC’s New York Regional Office. “Perry’s failure to follow the disclosure obligations of the securities laws deprived the market of important and relevant facts.”
Perry agreed to pay a $150,000 penalty to settle the SEC’s charges without admitting or denying the Commission’s findings.
According to the SEC’s order, Perry made a determination not to file the required disclosure statement after allegedly concluding that it acquired the Mylan shares “in the ordinary course of its business” and was thus entitled to defer its reporting obligations. However, Perry’s acquisition of Mylan shares was not “in the ordinary course” of its business. “Qualified institutional investors” can defer their reporting obligations only when they acquire securities as part of their ordinary market making or passive investment activities. When institutional investors acquire ownership of securities for the purpose of influencing the direction or management of an issuer, or affecting or influencing the outcome of a transaction – such as acquiring shares for the primary purpose of voting those shares in a contemplated merger – the acquisition is not made and the shares are not held in the “ordinary course” of business. Perry was required to disclose its acquisition of more than 5 percent of Mylan shares within 10 days of the acquisition. By failing to do so, Perry violated Section 13(d) of the Exchange Act and Rule 13d-1 thereunder.
In addition to the financial penalty, the Commission censured Perry and ordered it to cease and desist from committing or causing any violations of Section 13(d) of the Exchange Act and Rule 13d-1 thereunder.
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