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SEC Announces Cases Related to Disclosures During Battles for Corporate Control


Washington D.C., Feb. 14, 2017 —

The Securities and Exchange Commission today 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 finds that Texas-based oil refinery company 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 agreed to settle the case without admitting or denying the findings in the SEC’s order, which notes that the company will not pay a penalty due to its remedial acts and extensive cooperation with the investigation.

The SEC’s order in the other case finds that groups of investors failed to properly disclose ownership information during a series of five campaigns to influence or exert control over microcap companies.  Jeffrey E. Eberwein and Charles M. Gillman collaborated with mutual fund adviser Heartland Advisors in some of these campaigns, and other campaigns involved a hedge fund adviser headed by Eberwein called Lone Star Value Management and a private fund advised by Gillman called Boston Avenue Capital.  In each of these campaigns, the groups collectively owned more than five percent and sometimes even more than 10 percent of the companies’ outstanding common stock, yet the required ownership filings to disclose that information to the investing public were either incomplete, untimely, or altogether absent.  Without admitting or denying the findings, they consented to the SEC’s order and agreed to penalties of $90,000 for Eberwein, $30,000 for Gillman, $120,000 for Lone Star Value Management, and $180,000 for Heartland Advisors.

“Full, fair, and accurate disclosures from all parties in a battle for corporate influence or control are critically important to investors particularly when they are called upon to make decisions about their investments,” said Gerald Hodgkins, Associate Director of the SEC Division of Enforcement.  “Investors in these companies were deprived of key facts needed to make informed investment decisions.”

The SEC’s investigation into CVR was conducted by Nicholas A. Brady and supervised by Anita B. Bandy, and the other investigation was conducted by Jonathan M. Cowen and supervised by Jeffrey P. Weiss.  Providing assistance in both investigations was Nicholas Panos of the SEC Division of Corporation Finance’s Office of Mergers & Acquisitions.


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