March 5, 2024
SEC Alleges 13D Violations for Failure to Timely Disclose Control Purpose
Last Friday, the SEC announced settled charges against a hedge fund for beneficial ownership reporting failures. The fund agreed to a $950,000 civil penalty. Here’s more from the press release:
According to the SEC’s order, on Feb. 14, 2022, HG Vora disclosed that it owned 5.6 percent of Ryder’s common stock as of Dec. 31, 2021, and certified that it did not have a control purpose. The order states that HG Vora then built up its position to 9.9 percent of Ryder’s stock and formed a control purpose no later than April 26, 2022. The federal securities laws therefore required it to report its control purpose and its current ownership position by May 6, 2022, but it did not report this information until May 13.
On that same day, HG Vora sent a letter to Ryder proposing to buy all Ryder shares for $86 a share, a sizeable premium over the trading price. Before the letter to Ryder and its filing, and after forming a control purpose, HG Vora purchased swap agreements that gave it economic exposure to the equivalent of 450,000 more shares of Ryder common stock. After HG Vora’s public announcement of its bid on May 13, 2022, Ryder’s stock price increased significantly.
As evidence of the control purpose on April 26, the SEC’s order notes that it was the date the adviser began drafting an offer letter:
On April 26, 2022, HG Vora Capital Management first considered making its own acquisition bid for Ryder, with financing to be provided by a private-equity firm. Later that day, HG Vora Capital Management began drafting an offer letter to Ryder, with a “placeholder” offer price of $85 per share.
The SEC’s press release notes that a 10-day filing deadline was in effect at the time of the conduct; under the amended rules, that deadline would be 5 business days.
– Meredith Ervine