The Securities and Exchange Commission is considering a civil enforcement action against hedge fund Perry Capital for allegedly trying to maneuver its way into influencing the outcome of a merger bid. According to The Wall Street Journal, Perry, already a major shareholder in King Pharmaceuticals, favored a merger with Mylan Laboratories and bought around 25 million shares of Mylan so that it could vote for the merger – and make a killing as a King shareholder. Perry, reports The WSJ, also assured it wouldn’t lose money in the deal through a series of hedging transactions. Eventually the bid failed thanks to litigation filed against Perry by Carl Icahn, a stakeholder in Mylan. The SEC, issuing a Wells Notice –normally a precursor to enforcement action from the regulator - says the firm founded by former Goldman Sachs investment banker Richard Perry may have violated antifraud provisions by not disclosing financial information regarding its stake. Perry wrote in a letter to investors that the firm “acted properly at all times and with the advice of counsel.”
Commenting on the matter, hedge fund lawyer Jennifer Spiegel of law firm Debevoise & Plimpton told the Journal, “Now that [hedge funds] are playing more of a role in the investment world, they are subject to the same rules as everybody else. Just because they are fast-moving investment vehicles, hedge funds shouldn’t play by different rules.”