The SEC charged motion picture company Lions Gate Entertainment Corp. with failing to fully and accurately disclose to investors a key aspect of its effort to thwart a hostile takeover bid. While the company agreed to pay $7.5 million to the SEC, it also admitted to nine pages of unflattering facts and that its conduct violated the federal securities laws. Here, the SEC had the goods.
To make a long and interesting story short, the company engineered a transaction with a noteholder to reduce the conversion price on outstanding notes, arranged for the sale of the notes to a director and immediate conversion of the notes to dilute the shareholder making a hostile takeover attempt. The company failed to disclose the purpose of the transaction was to thwart a hostile takeover in an 8-K filing and the company’s Schedule 14d-9. The script includes a board meeting at midnight. It’s the kind of stuff you can’t make up, even if you are a motion picture company.