The U.S. Justice Department Sued ValueAct for Violating Disclosure Rule

By Staff Writer

Apr 15, 2016 05:59 AM EDT

The United States Justice Department last week filed a lawsuit against ValueAct Capital for violating disclosure rule in the Halliburton-Baker Hughes merger deal. Meanwhile, ValueAct on Monday said to defend its position vigorously and pledged to fight the lawsuit.

Reuters repoted that the U.S. Department of Justice alleged ValueAct Capital improperly classified two company investments as passive, which exempt the information from disclosure requirements. The U.S. Antitrust law clearly exempts disclosure of investment if the purchaser of stock owns less than 10% of the shares. The law also allows individual and institution to conceal the purchase information if they have no intention of participating in business decisions.

The Department of Justice in its lawsuit said that ValueAct Capital started to acquire stakes in both Halliburton and Baker Hughes using access to the companies' executives. Afterward, the San Fransisco-based hege fund formulated a merger strategy between the two energy giants while withholding the information.

Some activist managers told Reuters that many active and passive investors have more inclination to work together to pressure management at underperforming companies. While activist investors court passive shareholders before launching a campaign, passive investors recruits activists to agitate shareholders. In regard to such activity, a New York law firm specialized in financial services Davis Polk in a memo to clients said that traditional funds need to reassess compliance with disclosure law.

"Such an institution will have to examine whether it can claim to have a truly 'passive' intent," the memo read.

In the lawsuit, as cited by CNBC, said a civil penalty of "at least $19 million" was appropriate. While ValueAct pledged to fight the lawsuit and will vigorously defend its position.

Meanwhile, ValueAct Capital denied any wrong doing in the antitrust case, as Forbes reported. The firm is a well-respected activist hedge fund which has helped companies to overcome obstacles and strengthen their business. In a statement issued on Monday, ValueAct defended its position and said the hedge fund had acted accordingly to the law.

"We have acted entirely properly and in compliance with the law. We fundamentally disagree with the Department of Justice's allegations in this case," the statement said.

"ValueAct strongly believes in the most basic principles of shareholder rights. This includes having a relationship with company management, conducting due diligence on investments, and engaging in ordinary course communications with other shareholders. As a result, we see no alternative but to contest the Department of Justice's action and will vigorously defend our position."

Department of Justice sued ValueAct Capital for violating disclosure rule in Halliburton and Baker Hughes merger deal. Nevertheless, ValueAct on Monday said to have no wrongdoing in the issue, and vowed to defend its position.

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