A few days after the Canadian pharmaceutical company Valeant announced that it had teamed up with the activist investor William Ackman to bid for Botox maker Allergan, Wachtell, Lipton, Rosen & Katz wrote ateeth-gnashing client alert about the new threat to corporate targets from the unholy alliance of a strategic bidder with an activist hedge fund. Commentators were already raising questions about whether Ackman and Valeant had engaged in insider trading, because Ackman secretly accumulated Allergan shares based on his knowledge of Valeant’s imminent takeover bid. ...
... On Friday, Wachtell – now acting as counsel to Allergan, along with Latham & Watkins – filed a complaint in federal court in Los Angeles that accuses Valeant and Ackman of executing an “improper and illicit insider-trading scheme … flouting key provisions of the federal securities laws.” The suit not only claims that Valeant and Ackman didn’t make adequate disclosures to Allergan shareholders – reviving an old takeover defense tactic from the 1980s – but also pushes the novel theory that Ackman violated a provision of the Williams Act prohibiting anyone except an acquirer from trading on material non-public knowledge that the acquirer has taken “a substantial step” toward launching a tender offer.
Frankel doubts the complaint will hold up, but go read the whole thing and make up your mind.
My take? There's more likely to be a Section 13(d) problem than an insider trading case. Item 7 of Schedule 13D requires the filer (here Ackman and Valeant) to include as exhibits "copies of all written agreements, contracts, arrangements, understanding, plans or proposals relating to: (1) The borrowing of funds to finance the acquisition as disclosed in Item 3; (2) the acquisition of issuer control, liquidation, sale of assets, merger, or change in business or corporate structure, or any other matter as disclosed in Item 4; and (3) the transfer or voting of the securities, finder's fees, joint ventures, options, puts, calls, guarantees of loans, guarantees against loss or of profit, or the giving or withholding of any proxy as disclosed in Item 6."
Frankel tells us that "Pershing and Valeant had first executed a confidentiality agreement in February, though neither that agreement nor an amended version of it was disclosed to the SEC."
If that's all Wachtell has to go on, Achman and and Valeant would at most get a slap on the wrist, espcially if they amend their Schedule 13D to disclose the missing items. Energy Ventures, Inc. v. Appalachian Co., 587 F.Supp. 734, 743–44 (D.Del.1984) (interim injunctive relief deemed inappropriate where corrective filing had been made); University Bank & Trust Co. v. Gladstone, 574 F.Supp. 1006, 1010 (D.Mass.1983) (injunction denied where purchaser had made curative disclosure).