The world of shareholder activism is no stranger to controversies and debates over regulatory changes. Recently, the U.S. Securities and Exchange Commission (SEC) issued a memo addressing the requirement for faster public disclosure by activist hedge funds. While many comment letters praised the draft regulations, one major player, Elliott Management Corp., has emerged as a vocal opponent of the proposed rules and the SEC's supporting study. In today's blog post, we will explore the critical points raised by Elliott Management Corp.
The Key Issue: 13D Disclosure Rules
The SEC's measure, initially proposed in 2020, aims to require activists to disclose their positions in a Schedule 13D filing within five days of owning more than 5% of a company, as opposed to the current 10-day requirement. While the proposal received widespread support, the debate resurfaced in April when the agency reopened the comment period with a report seemingly intended to bolster the provision.
Elliott's Letter of Opposition:
Elliott critiques the study's failure to assess the real costs incurred in protecting shareholders who sell shares before activist campaigns, impacting fairness. They argue against treating activist fund accumulations differently, asserting that all investors have the right to privately acquire shares. Additionally, they criticize the use of the term "opportunistic trader" as derogatory and potentially misrepresenting activist investors' motives and actions.
Among various concerns, Elliott has particularly highlighted the flawed data used in the study, which they argue undermines the credibility of its conclusions.
Inaccurate Definition of "Prominent Activists"
Elliott Management Corp. emphasizes the study's reliance on the term "Prominent Activists," which is defined using FactSet SharkRepellent database. According to Elliott, the database contains numerous errors, leading to incorrect assessments of several activist investors. For instance, FactSet lists Elliott with zero assets under management and zero equity assets, which is factually inaccurate. The database also includes other well-known activist investors with similar errors.
Issues with the FactSet Database
Further scrutiny reveals significant issues with the FactSet database. Among the 50 "Prominent Activists" listed, 14 are no longer operational or have not engaged in activism for at least four years. Additionally, some entities operate exclusively outside the United States, making them irrelevant to an analysis of activism's effects on U.S. markets. Elliott points out that the study's reliance on such superficial errors raises questions about the thoroughness of DERA's data verification process.
Impact on Study Conclusions
Elliott highlights the potential impact of these inaccuracies on the study's conclusions. If incorrect data is used to support the premise that activism harms U.S. capital markets, then the resulting conclusions become unreliable or possibly incorrect. Elliott points out that certain transactions that may be mistakenly attributed to activists could actually be separate investment activities with different implications.
Need for Accurate Data
Elliott Management Corp. again emphasizes the importance of accurate data in regulatory decisions. Flawed data can lead to misguided policies that may not adequately address genuine concerns or provide meaningful solutions.
In conclusion, Elliott Management Corp.'s critique of the SEC's study on shareholder activism raises vital issues regarding the use of accurate data in regulatory decision-making. Inaccurate information can compromise the credibility of study conclusions and, in turn, the foundation of proposed regulatory changes. As the SEC continues its examination of the study and feedback from various stakeholders, the need for meticulous data verification becomes paramount to ensure a well-informed and equitable regulatory approach to shareholder activism.
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And there you have it! That's all for our blog post today. We hope this informative discussion highlights the importance of accurate data in regulatory decisions and how it can spark interesting conversations within the shareholder activism community.