harry s. davis a look across the pond: uncle sam’s recent enforcement actions and civil litigation...
TRANSCRIPT
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Harry S. Davis
A Look Across The Pond: Uncle Sam’s Recent Enforcement Actions And Civil Litigation Update Concerning Hedge Funds
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Statistics: Incidents of Misconduct
0
5
10
15
20
25
30
35
'00 '01 '02 '03 '04 '05 '06
6
Year
Number of Cases
6 79 8
12
34
12
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Current Enforcement Landscape
• Valuation Fraud• Misappropriation of Assets• Insider Trading• Market Manipulation• Violations in Connection
with Securities Offerings• Naked Shorting• Market Timing/Late
Trading• Hedge Fund Marketing• Antitrust Issues
Types of Enforcement Actions Against Hedge Funds
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The SEC’s PIPEs Investigation
• Broad Ranging, Industry-Wide Investigation
• Civil and Criminal• Hedge Funds,
Placement Agents and Individuals
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The SEC’s PIPEs Investigation
• Genesis– Complaint By Mutual Fund To SEC
– Noticed Significant Price Erosion Prior To Announcement Of PIPE
• The Investigation Begins– OCIE: 22 Placement Agents/Brokers/Bankers Get
Requests For Information• Identify Deals
• Who Knew About Them, What Did They Know, And When?
• Investigation Heats Up: Enforcement Involved– Focus Turns To Hedge Funds
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The SEC’s PIPEs Investigation
• Insider Trading Claims– Shorting After Knowledge of PIPE
– Claim Based, At Least In Part, Upon Promise Not To Engage In Shorting Activities
• Market Manipulation– The “Death Spiral”: Shorting For The Purpose Of
Driving Price Down Prior To Conversion
– Hiding Trades From Market
– Failure To Deliver
– Matched Orders and Wash Sales
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The SEC’s PIPEs Investigation
• Other Issues– Public Disclosure: How Long Do You Have To
Wait Before Shorting?
– Not Covering Short Position With Newly Registered Shares
– Properly Unwinding Positions
– Pre-Arranging Borrow
– Investment Intent
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The Civil Litigation Landscape
• Claims Against Redeeming Investors– Manhattan Investment Fund
– Lancer
– Bayou
• Theories of Liability– Fraudulent Transfer
– Preference
– Unjust Enrichment
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The Civil Litigation Landscape
• Purportedly False Research Reports Procured By Hedge Funds: Issuers v. The Shorts– Overstock.com
– Biovail
– Fairfax
• Theories of Liability– RICO
– Disparagement
– Tortious Interference