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February 14, 2017

Posted  February 27, 2017

The SEC announced two enforcement actions involving disclosure violations that deprived investors of material information during battles for corporate control of publicly traded companies.  In one case, the SEC’s order found that Texas-based oil refinery CVR Energy made inadequate disclosures in SEC filings about “success fee” arrangements with two investment banks retained by the company to fend off a hostile takeover bid.  Shareholders were consequently unaware of potential conflicts of interest that stemmed from the fee arrangements, namely that the banks could still earn success fees even if the hostile bidder secured control of the company.  CVR will not pay a penalty due to its remedial acts and extensive cooperation with the investigation.  In the other case, the SEC’s order found that groups of investors failed to properly disclose ownership information during a series of five campaigns to influence or exert control over microcap companies.  Jeffry E. Eberwein and Charles M. Gillman collaborated with mutual fund adviser Heartland Advisors in some of these campaigns.  Others involved Lone Star Value Management, a hedge fund adviser headed by Eberwein, or Boston Avenue Capital, a private fund advised by Gillman.  In each of these campaigns, the groups collectively owned more than five percent and sometimes even more than 10 percent of the companies’ outstanding stock, yet the required ownership filings to disclose that information to the investing public were either incomplete, untimely, or altogether absent.  Eberwein, Gillman, Lone Star, and Heartland will collectively pay penalties of $420,000.  SEC

Tagged in: Misrepresentations, Securities Fraud,