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The Morning Brief: Ackman’s Allergan Bid Puts SEC Rules in Hot Seat

—The epic tag-team tender offer made by William Ackman and Valeant Pharmaceuticals for Allergan last week has raised questions about the long-standing rules for filing a 13D form, which the SEC requires when anyone acquires at least 5 percent of a company’s stock. Currently filers have 10 business days to submit the filing, during which they can continue to accumulate their position. However, several critics are lobbying for the window to be closed somewhat as well as other changes. The latest lobbyist: the law firm Wachtell, Lipton, Rosen & Katz, which specializes in defending takeover targets. “The bidders conspicuously structured their accumulation plan to outflank the SEC’s outdated ‘early-warning’ rules (by using derivatives and taking advantage of Regulation 13D’s 10-day filing window) and the Hart-Scott-Rodino Antitrust filing requirements (under which clearance is only needed to exercise options, not to buy them),” says a client memo the firm distributed on Friday. “They also took express pains to sidestep Rule 14e-3, which outlaws insider-trading in connection with a tender offer, by styling themselves as co-bidders and not (yet) proceeding towards a tender offer.” Keep in mind that the SEC was given the mandate to change the 13D window in the Dodd-Frank Wall Street Reform and Consumer Protection Act adopted in 2010. And before she left the agency, then-chairman Mary Schapiro said publicly that she would visit this issue, among others. However, so far the SEC has not acted.

— Stephen Walsh, who along with Paul Greenwood ran the commodities trading advisor WG Trading Investors, pleaded guilty Friday to securities fraud. Walsh agreed to pay nearly $51 million. He also faces up to 20 years in prison. According to the government, from 1996 through February 2009 Walsh and Greenwood fraudulently raised $7.6 billion, in part from institutions, to engage in “equity index arbitrage,” which they claimed was a conservative trading strategy that had outperformed the S&P 500 for more than 10 years. However, the pair, say authorities, “misappropriated hundreds of millions of those dollars for their own personal benefit,” and then created false promissory notes and account statements to hide their scheme. Walsh was originally charged in February 2009. Walsh and Greenwood at one point were minority owners of the New York Islanders hockey team. According to Bloomberg, Greenwood pleaded guilty in 2010 but has not been sentenced. He was scheduled to testify against Walsh at his July trial.

— John Paulson continues to talk up his case for investing in Puerto Rico. Speaking last week at the Puerto Rico Investment Summit, he called the island, “the Singapore of the Caribbean.” According to news reports from the summit, he said he is building a home in Puerto Rico. His firm, Paulson & Co., recently purchased two San Juan resorts, La Concha Resort and the Condado Vanderbilt, for about $200 million. Last September Paulson & Co. invested in the St. Regis Bahia Beach Resort and the Bahia Beach Resort & Golf Club. In February Alberto Baco Bague, Secretary of Economic Development and Commerce of Puerto Rico, addressed bondholders at a webcast in February in which he reportedly said Paulson plans to invest $1 billion in Puerto Rican projects over the next two years.

— Activist hedge fund manager Lawrence Seidman, who specializes in small regional banks, reduced his stake in Germantown, Maryland-based OBA Financial Services by more than one percentage point, to 5.25 percent.

—All eyes will be on Herbalife today, when it reports its quarterly results.

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