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The Securities and Exchange Commission’s enforcement unit is looking into whether several activist funds teamed up at target companies without disclosing their alliances.
The unit is working quietly, sending several private inquiries for information to the insurgent funds, according to people familiar with the matter.
But don’t expect a major crackdown any time soon. The SEC’s efforts were reported by The Wall Street Journal this month.
The paper noted that scrutiny of activists, though rare for the SEC, was part of a broader focus on trading disclosures.
And while the inquiry is potentially explosive, observers say that they would be surprised if the SEC’s actions result in a major enforcement initiative. In addition, corporate lawsuits seeking to identify illegal collaboration haven’t amounted to much over the years.
At issue are Schedule 13D filings made to the SEC. Activist fund managers and other investors are required to publicly report their stakes within 10 days of owning 5% or more of a public company when they have plans to communicate some sort of strategic options for the business, which they must explain in the report.
Any two activist fund managers who jointly agree to buy, sell or vote securities and communicate their intentions for the company are required to jointly file a 13D if they together own more than a 5% stake. Companies targeted by insurgents lately have stepped up pressure on the SEC© to identify whether activists are working as a group but not disclosing their ties.
The breadth of the inadequate disclosure problem is unclear.
However, a recent study by The Analysis Group titled “Wolf Pack Activism” suggests that a number of insurgents wait to file a 13D to allow other investors to accumulate large positions in the same targeted company before disclosing their stake.
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