There is riveting reading in the just-decided case of CSX Corporation vs. Children’s Investment Fund. Yes, it’s a court filing, but nowhere else are you likely to get so detailed and lucid a discussion of how a major investor works to play disclosure tricks at the market’s periphery.
Defendants seek to defend their secret accumulation of interests in CSX by invoking what they assert is the letter of the law. Much of their position in CSX was in the form of total return equity swaps (“TRSs”), a type of derivative that gave defendants substantially all of the indicia of stock ownership save the formal legal right to vote the shares. In consequence, they argue, they did not beneficially own the shares referenced by the swaps and thus were not obliged to disclose sooner or more fully than they did. In a like vein, they contend that they did not reach a formal agreement to act together, and therefore did not become a “group” required to disclose its collaborative activities, until December 2007 despite the fact that they began acting in concert with respect to CSX far earlier. But these contentions are not sufficient to justify defendants’ actions.
Read it all here, right down to the "Blue Horseshoe loves Anacot Steel"-style games Children’s allegedly played in tipping off other hedge funds to its interest in CSX.
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