Friday, June 27, 2008
The SEC Fumbles Again
"A federal judge found that two hedge funds had consciously avoided securities laws in their proxy battle with railroad CSX Corp., in a decision that stands to reshape how activist investors move on their corporate targets. ... [Hedge funds] were especially fearful [Judge Lewis Kaplan] would take a skeptical view of swaps, which allow shareholders to create a kind of synthetic stock via private contracts with large Wall Street firms. Those synthetic shares trade in tandem with a company's real shares, alllowing a hedge fund to post economic gains without filing share-ownership reports as required by securities law. Such arrangements have been legal for decades. Last week, the [SEC] said it was largely okay with swaps as long as they weren't used to disguise takeover intentions. ... Kaplan appeared to take the SEC head on, saying that its views on the swaps generally 'exalts form over substance.'," WSJ, 12 June 2008.
The SEC fumbles another football. This is a disgrace. Chris Cox (CC), SEC chairman has a Harvard JD. Apparently he was not exposed to the maxim of jurisprudence: "the law respects the substance over the form". Alternatively, he forgot it. I wonder if Harvard Law School has some refresher classes CC could take.