The Lerach Effect

The last name “Lerach” may be prone to cause indigestion, especially for those public companies that were named in one of his myriad class-action lawsuits. Before he was sentenced to two years in prison Monday, Lerach ever-so-artfully said, “I knew what I was doing was wrong.”  And so it goes. In my reporter days, receiving a press release from Lerach’s law firm seemed like a cheap and easy thrill when hunting down a juicy business story. But after reading a couple of paragraphs something always smelled a little fishy. With the market in a state of flux, it wouldn’t surprise me if we begin to see a new flurry of unfounded class-action lawsuits.


Evan Pondel, Senior Associate,

In and Out

Effective with the start of trading on February 19, the Dow Jones Industrial Average will add Bank of America Corp. and Chevron Corp. and drop Altria Group Inc. and Honeywell International Inc.  Reuters said that this is the first change in the 111-year old Index since April 2004.
The composition of the index is determined by editors of the Wall Street Journal and while there are no set criteria for a stock to be added or deleted, the editors of the Journal intend that all of the components of the index be highly established U.S. companies that are leaders in their respective industries.


Laurie Berman, Senior Vice President,

New SEC Financial Agent

The U.S. Department of Treasury’s Financial Management Service has designated U.S. Bank of St. Louis, Missouri as the new Financial Agent for General Lockbox Services for the Securities and Exchange Commission. US Bank assumed responsibility from Mellon Bank on February 4, 2008. All fee payments (wires and checks) must be submitted to US Bank on and after this date. No payments should be submitted to Mellon Bank after February 1, 2008.
Click here for general information on filing fee procedures, or refer to 17CFR 202.3a, Instructions for Filing Fees.
For other questions or additional information, contact the Fee Account Services Branch in the Office of Financial Management at (202) 551-8989.


— PondelWilkinson,

Nasdaq Update

Nasdaq recently began placing its relationship managers in the field to keep them geographically closer to the listed companies they serve.  For example, Southern California (from San Diego to Santa Barbara) is now covered by two Nasdaq relationship managers who reside in the region.
Listed companies should maintain proactive relationships with their relationship managers as these folks can trouble shoot any issue from compliance to listing standards to bell-ringing ceremonies to renting out the Nasdaq MarketSite in New York City for your next analyst day.
We were reminded of a couple of interesting tid-bits when Nasdaq visited our offices recently:

  • Nasdaq’s 2008 Core Services for listed companies (which include free webcasts, a dynamic annual report and Board tools, among others) are valued at $25,000.
  • Participation in bell-ringing ceremonies, at the open and close, are market cap driven.  In general, a listed company must have a market cap of $500 million to open the market and $250 million to close the market.
  • Nasdaq’s European investor conference is open to companies with market caps of at least $1 billion.
  • Pre notification to Nasdaq for all press releases is now handled via an electronic disclosure form at
  • Each listed company has a dedicated surveillance account manager called a market intelligence director (MID).  Your MID can provide you with information about large block trades or significant price swings in your stock.  You can work with your market intelligence director to initiate calls when your stock price moves by a pre-determined percentage or when a block of a pre-determined amount of shares changes hands.  You can also call your market intelligence director whenever you need more clarity on how and why your stock is moving.

Log on to your company’s Nasdaq home page here for more information.


Laurie Berman, Senior Vice President,

Saying Tata to Economic Jitters

If there is any indication that the economy is softening and consumers are interested in curbing their spending habits, it’s the Tata. Yes, the Tata. Despite a name that is often associated with someone saying goodbye, the world is saying hello to arguably one of the most inexpensive cars on the road. Both Portfolio and The New Yorker ran stories about the Tata in recent weeks. So, how inexpensive is the Tata? Try $2,500. And you thought the Smart car was an economical solution to rising gas prices, market volatility and the lack of coolness in your life.


Evan Pondel, Senior Associate,

UBS’s Take on the World Economy

In a recent conference call with clients, UBS’s chief economist and head of asset allocation, said that their targets for growth in the global economy have been revised downward.  UBS is now expecting 3.6% growth in 2008 and 3.8% growth in 2009.  Specifically, the U.S. is projected to grow at only 0.8% this year down from a standing estimate of 2.1%, while growth in Asia is expected to grow at 7.8% and growth in euro-based countries should grow 1.3%.
The dollar is expected to remain weak against emerging currencies, with the euro peaking at around $1.50 and giving up some gains to about $1.40 in the back half of this year.
Financials kicked off the current market volatility in the U.S. and elsewhere, and while there have been some significant write-downs thus far, UBS believes that a second and third leg of write-downs are still to come, possibly from credit card issuers and for corporate bonds.
What does this mean for global stock markets?  UBS currently likes U.S. equities, especially relative to European equities, believing that expanding profit margins will be one catalyst for enhanced market valuations.


Laurie Berman, Senior Vice President,

Hedge Funds, Activists Go Undetected

The 13D rule requires investors to disclose stakes of more than five percent, and the Hart-Scott-Rodino Act requires investors to disclose when they invest more than $60 million.  With these required alerts in place for decades, why are public companies surprised when they find a hedge fund or activist fund has taken an enormous stake and is well poised to mount a proxy contest?  
Today’s hedge funds and other activists have cleverly found that the law requires them to disclose only when they control more than five percent of the vote, not five percent of the “economics” in a company.  These hedge funds and activists have quietly and cunningly been able to get around the rules through complex “swap” agreements with investment banks.
Here’s a simplified version of how the loophole works: An investor calls an investment bank and says, “Please buy 100 shares of company X. You can hold onto those shares in your name — and technically, you can do whatever you want with them. In six months, if the shares have gone up, you’ll owe me the difference. If they go down, I’ll owe you. And for all the cartwheels you’re doing for me, I’ll pay you a ‘small’ fee.”
The banks buy the shares on the investors’ behalf, but technically never transfer full ownership until a predetermined time and price.  During the time in which these shares are “parked” in the investment bank’s name, the investors do not own the shares at all, just the “economics” of them, and are therefore not required to file the regulatory notices.
Is this legal?  The answer is yes.
Although it may sound absurd, the funds are doing nothing wrong. But given the possibility for abuse and the impact on other shareholders, this loophole should be closed.
A spokesman for the Securities and Exchange Commission said they are looking into the issue — but clearly they are not acting fast enough.



NYSE Euronext to Acquire AMEX

NYSE Euronext, the owner of the New York Stock Exchange, announced that it has entered into an agreement to purchase the American Stock Exchange (Amex) for $260 million in NYSE Euronext stock.  As part of the transaction, current Amex members will be entitled to receive additional shares of NYSE Euronext common stock based on the net proceeds from the expected sale of Amex’s lower Manhattan headquarters.
The deal is expected to close in the third quarter of 2008.  No word yet on what impact, if any, the merger will have on Amex listed companies.


Laurie Berman, Senior Vice President,

Fed Head Acknowledges Risk

Federal Reserve chairman Ben Bernanke told the Women in Housing and Finance and Exchequer Club today that the U.S. Central bank is prepared to act aggressively to help stem problems caused by the recent housing slump and strains on the credit markets that are putting economic growth at risk.
Many analysts who fear that the United States is headed for a recession, reacted positively to the Fed chairman’s remarks and his public acknowledgement that the economy may indeed be in trouble.
Bernanke commented that policy makers are now more worried about sustaining economic growth than they are about inflation and pointed to rising oil prices, lower stock prices and falling home values as drivers for hurting consumer spending over the next year.
The Federal Open Market Committee, the Fed’s policy setting body, will hold a two-day meeting January 29-30.  Bernanke’s comments today reinforced expectations that rates will be cut by a half percentage point.


Laurie Berman, Senior Vice President,

Kendall Jackson

So, NIRI hosted its annual Los Angeles dinner last night at the Loews Santa Monica Beach Hotel.  I was the first person to arrive (gulp) and quickly did a u-turn at the door to avoid feeling like an over zealous investor relations professional.  But then I noticed Kendall Jackson standing at the bar.  I affixed my name tag to my lapel and meandered over to the bar for a chat with Mr. Jackson.  I kept my head down at first, you know, to keep the casual nature of the event in full effect.  Armed with business cards and a fresh coat of antiperspirant, I proceeded to speak with Mr. Jackson.  I said hello, and before he could utter a word, his handler, the bartender, informed me that it would cost $5 to speak with Mr. Jackson.  
I forked over the $5 and spent the next hour and a half entertaining Mr. Jackson, along with other investor relations professionals.  We met Jeff Morgan, the recently appointed chief executive officer of NIRI.  We said hello to Jim Lucas of Abernathy MacGregor.  We also listened to Linda Kelleher, executive vice president of NIRI, talk about shareholder activism and where the industry is headed.  Specifically, Kelleher said instead of letting activist shareholders come to you with questions about a particular company, you should proactively be reaching out to them.  My motto for 2008: Engage activism with activism.  And with that I finished my conversation with Kendall Jackson and proactively ordered another one at the bar.


Evan Pondel, Senior Associate,