What the SEC really does matters
To state the obvious: exits are affected by the state of the market. The state of the market is affected by investor confidence. Investor confidence is affected by fraud in the market. The SEC is charged with overseeing the public markets for securities. As a result their activities have a profound effect on our industry. I have written about this sort of thing before, but sometimes you have to wonder what the SEC thinks it is doing. I recently witnessed a colloquy between two SEC attorneys, a hazard of my end of the profession, and I thought it worthy of reproducing because of the evident frustration of the lawyers.
Lawyer A:
For those of you involved with public company acquisitions, note the SEC's new interpretation 239.13, which indicates that directors, officers and others who sign consents to a transaction will receive restricted securities, not registered securities, apparently even when the transaction is registered on Form S-4. My reading of the interpretation is that this outcome does not apply if the insiders merely agree to vote in favor of the deal.
In my experience, acquisitions of public companies are rarely accomplished by means of a consent solicitation, which makes this interpretation seem mostly inapplicable.
However, the interpretation does not explicitly address voting agreements that include an irrevocable proxy in favor of the buyer (which is the customary practice). If there is a meaningful distinction between a written consent and an irrevocable proxy (at least for purposes of determining whether or not there is an investment decision), it is an awfully thin one.
So beware: of late the SEC staff (particularly the Office of Mergers and Acquisitions) has not be particularly accommodating, so you might find yourself fighting about this issue.
Lawyer B:
The SEC's preoccupation with baroque distinctions like these is why they miss little things like a $50 billion Ponzi scheme conducted over 15 years by a high-profile member of the investment community. It's a perfect example of one of Parkinson's laws, the Law of Triviality.
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