By Liz Hoffman, Aruna Viswanatha, and David Benoit

June 4, 2015 4:53 p.m. ET

The Securities and Exchange Commission is investigating whether some activist investors teamed up to target companies without disclosing their alliances, potentially in violation of federal securities rules, according to people familiar with the matter.

The SEC’s enforcement division has recently opened multiple investigations and sent requests for information to a number of hedge funds, according to some of the people. Neither the names of the funds nor the companies they targeted could immediately be ascertained.

SEC representatives didn’t immediately respond to requests for comment.

As part of a broader effort to promote transparency, the SEC is looking at whether certain investors coordinated their efforts without filing appropriate disclosures. Federal securities regulations require investors who jointly agree to buy, sell or vote securities to disclose those arrangements, and to designate themselves as a group if they together own at least 5% of a company’s stock or are soliciting votes from other shareholders. Such formal, disclosed alliances have included a recent effort by Barington Capital Group LP and Macellum Capital Management LLC to win board seats at retailer Children’s Place Inc.

The rules are meant to keep hedge funds from exercising the influence that comes with a big stake without incurring obligations that are meant to level the playing field with smaller shareholders.

The issue has taken on greater importance as activist hedge funds, which accumulate stakes in companies and agitate for changes such as stepped up share buybacks and asset sales, have become a major force in corporate America in recent years. Activists sometimes tip potential hedge fund allies to their trading plans, a Wall Street Journal investigation found last year. The practice isn’t illegal as long as they don’t coordinate their trades.

The investigations represent a relatively rare move by the SEC, which has taken a more hands-off approach to regulating activists. Despite appeals from companies and their advisers to make the funds’ trading more transparent, senior SEC officials have expressed little inclination to do so.

Michele Anderson, who heads the SEC’s office of mergers and acquisitions, said at a conference in March that changing the regulations on activist disclosures has proved to be “like peeling an onion,” where efforts to tackle one issue simply reveal another.

But the SEC has recently ramped up its scrutiny of trading disclosures more broadly and the activist-fund investigations are part of that effort, the people said. The effort includes increased coordination between the agency’s enforcement division and corporate-finance officials who review company and investor filings.

The first results of the initiative came in March, when the SEC charged eight corporate insiders for failing to update their stock ownership filings to reflect, among other things, steps they had taken toward buying the companies in question. The defendants agreed to settle the cases without admitting or denying the allegations.



The SEC is investigating whether activist investors skirted rules on disclosure of investments made with other funds. Some of the main hedge-fund disclosure rules:

•  5% Threshold: Activists have to disclose once they cross 5% ownership of a company within ten days

•  Work in Concert: Activists must disclose any agreements to work with other funds on an investment. If no single fund owns 5% but the group owns that much collectively, that must be disclosed.

•  Groups: Generally a group is considered to exist if the investors have reached any sort of agreement on how they will vote their shares or when they will trade the stock.


In a sign of the SEC’s new focus on the issue, the agency in March sent a letter to activist fund Bulldog Investors LLC about its campaign for board seats at Stewart Information Services Corp., a provider of title insurance. The SEC asked whether Bulldog had any “agreements or understandings” with Foundation Asset Management LP, another fund that had run its own proxy fight at the company.

Bulldog co-founder Phil Goldstein said in an interview that the funds never made any agreement about trading or voting shares. Scrutiny from the SEC could chill legal discussions between investors, he said, adding that it isn’t surprising that underperforming companies would draw interest from several activists.

 “If you go to a Grateful Dead concert, you’re going to find a lot of Grateful Dead fans,” he said. “They’re not a group. They just like the same music.”

In a speech to a gathering of corporate lawyers in March, SEC Chairman Mary Jo White said the agency was focused on ensuring that activists’ filings are accurate. She pointed to the enforcement actions in March as evidence the SEC was policing the area.

“Our role at the SEC is not to determine whether activist campaigns are beneficial or detrimental in any given circumstance,” Ms. White said. “Rather, the agency’s central focus is making sure that shareholders are provided with the information they need and that all play by the rules.”

Write to Liz Hoffman at and David Benoit at


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