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SEC Charges Hedge Fund with 13D Violation

by   |   July 16, 2018

The SEC charged a hedge fund sponsor that manages private funds and separately managed accounts focused on global distressed, special situations, and opportunistic investing with failure to timely file a Schedule 13D. The hedge fund had previously reported its holding on Schedule 13G.

The hedge fund had a senior managing director and portfolio manager that became a candidate for a board seat on a public company and began acting as a de facto board member. On October 28, 2014, the portfolio manager and a financial analyst emailed a list of recommended changes to the public company’s lead outside director and Chief Executive Officer. The e-mail noted “operations are a mess” and that “[i]nvestors don’t have unlimited patience.”

On November 6, 2014, the public company, at the suggestion of the portfolio manager, formed a special sub-committee of the top three officers and the independent directors. Thereafter, the special sub-committee held regular discussions with management of the public company, including the consideration of proposals for cost cutting, capital allocation, oil well development, and changes to the tone at the top. The portfolio manager participated in these discussions even though he was not yet appointed to the public company board.

On December 15, 2014, the public company board voted in favor of appointing the portfolio manager and a second candidate to join the company’s board. Later that same day, the public company filed a Form 8-K announcing the new appointments to its board. On December 22, 2014, approximately 45 days after the SEC asserts it had incurred a filing obligation, the hedge fund sponsor filed a Schedule 13D, disclosing that its portfolio manager was appointed to the public company board of directors on December 15, 2014.

The parties involved did not admit or deny the SEC’s findings.