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January 11, 2006
SEC intends taking action against Perry Capital
The Securities and Exchange Commission has notified Perry Capital, a large hedge fund company, that it intends to take action against the firm. The commission has accused the firm of violating disclosure rules when it used an unusual trading technique last year to try to influence a takeover battle.
Perrys has received a Wells notice that describes the SECs complaint. Before a case is brought, Perry has the right to argue its case to the agency.
The case stems from a complex hedging technique that Perry used to buy a voting stake in a company without holding the same economic interest in the company. SEC has alleged that Perry used a complex hedging technique to try to influence the outcome of a takeover battle for King Pharmaceuticals, a generic drug maker, waged by a larger rival, Mylan laboratories. The firm appeared tohave set up a sophisticated swap trade with Bear Stearns and Goldman Sachs so that it controlled about 10 per cent of Mylan's votes with limited or no exposure to fluctuations in Mylan's share price. The New York Times reports:
The maneuver made Perry the largest, if indirect, shareholder of Mylan, and could have helped ensure that Mylan would receive enough shareholder votes to approve the deal for King at a time when the next biggest shareholder of Mylan, Carl C Icahn, was trying to block the merger. If the deal had been completed, Perry stood to make more than $28 million, based on figures in an SEC filing.
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