By Cydney Posner

There  is an interesting article in the New York Times today regarding the use of swaps by hedge funds and others to secretly accumulate substantial holdings in companies while avoiding the filing of a Schedule 13D to report ownership. According to the article, the funds enter into complex swap agreements with investment banks under which the banks buy the shares on the investors’ behalf, but technically never transfer the 13D indicia of ownership (so they say), just the economics. The author contends that: "It is preposterous to believe that investors entering into such contracts have absolutely no influence over a company’s shares. The banks that put together these swaps are likely to take direction from their clients on how to vote, seeing as how those clients pay them millions a year in fees and commissions. Or, if the banks are holding the shares truly at arms-length as they say they are, they may decide not to vote at all — magnifying the importance of those who do vote, which, depending on which side of a proxy fight you’re on, can be a very good or very bad thing." The SEC says that it is looking at the issue.

This content is provided for general informational purposes only, and your access or use of the content does not create an attorney-client relationship between you or your organization and Cooley LLP, Cooley (UK) LLP, or any other affiliated practice or entity (collectively referred to as "Cooley"). By accessing this content, you agree that the information provided does not constitute legal or other professional advice. This content is not a substitute for obtaining legal advice from a qualified attorney licensed in your jurisdiction, and you should not act or refrain from acting based on this content. This content may be changed without notice. It is not guaranteed to be complete, correct or up to date, and it may not reflect the most current legal developments. Prior results do not guarantee a similar outcome. Do not send any confidential information to Cooley, as we do not have any duty to keep any information you provide to us confidential. When advising companies, our attorney-client relationship is with the company, not with any individual. This content may have been generated with the assistance of artificial intelligence (Al) in accordance with our Al Principles, may be considered Attorney Advertising and is subject to our legal notices.