Icahn’s Time Warner Play Catches Notice of the SEC

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The latest maneuverings of corporate raider Carl Icahn – namely his efforts to force Time Warner to take steps to pump up its sagging stock price – have caught the eye of the Securities and Exchange Commission, I’ve been told by persons familiar with the situation.


The SEC’s interest related to Time Warner is said to center on some trading that preceded a couple of Mr. Icahn’s mid-August disclosures. One was that he and some hedge fund partners acquired more than 120 million shares, or 2.6% of Time Warner. The other was the revelation that he and his partners were prepared to bid for up to 10% of the company, an event some traders ridicule as a legitimate possibility.


Last Wednesday, I’m told, a New York hedge fund received a call from an SEC staff member, inquiring about some of its trading activities in Time Warner shares. The inquiry was not surprising, given what was said to be the fund’s unusual stock action prior to the disclosure that the Icahn group had taken a stake in Time Warner. Before that disclosure, I’m told, the fund was short the stock (a bet its price would fall), but for some reason, again before the disclosure, it proceeded to cover that short position and then bought Time Warner stock.


The fund’s manager acknowledged that someone from the SEC called and said he had heard rumors that Mr. Icahn was buying Time Warner shares, a fact he contends was never actually confirmed to him. Those rumors, he told me, led him to shift investment gears.


Whether the SEC has contacted Mr. Icahn, as well, could not be determined. He declined to respond to calls seeking comment. A spokesman for the SEC, John Nester, told me that the agency, as is its usual policy, will not comment on unannounced investigations.


The Icahn group includes SAC Capital Advisors, which is run by Steve Cohen, widely viewed as Wall Street’s most successful trader; Jana Partners, and Franklin Mutual Advisors.


The SEC’s involvement in Time Warner trading follows a growing number of stock trading investigations and inquiries by the commission and various securities exchanges, many of which center on possible illegal use of inside information, according to regulatory contacts.


Time Warner aside, an additional four investigations – three by the SEC and one by the market surveillance division of the New York Stock Exchange – were all confirmed to me, but I couldn’t fully determine to what extent, if any, potential abuses of illegal trading may be involved.


Of these four investigations, two involve companies in the gaming business, and both probes are being conducted by the agency’s Los Angeles office, which has sent out queries to the brokerage community, requesting the names of anyone who traded in their stocks or options.


One investigation centers on Alliance Gaming Corporation, a Las Vegas owner of casinos and maker of slot machines, video game machines, and computer systems. The probe includes trading in a period prior to the company’s separate disclosures in early November that it would restate earnings in its fiscal years 2003, 2004, and parts of 2005 and that it recorded a $924 million loss in its fiscal fourth quarter.


The other gaming company is Houston, Texas-based Nevada Gold & Casinos, which owns and holds interest in casinos and owns 16 Pizza Huts in Brazil.


The other two trading investigations center on an SEC probe of the high-flying shares of pharmaceutical manufacturer United Therapeutics Corporation and a Big Board probe of NRG Energy, a leading power producer that was formerly in Chapter 11 bankruptcy.


One regulatory source, when asked specifically about why the number of insider trading investigations was rising, speculated that greed has yet to go out of fashion on Wall Street and that most people who cheat are convinced they’re never going to get caught. This source tells me that generally probes involving possible insider trading, though not at the level they were during the merger madness of the 1980s, seem to be growing like crazy.


The New York Sun

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