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Corporate Governance

: The Race to the Bottom

Beneficial Ownership, Equity Swaps, and Proxy Contests: CSX v. The Children's Investment Fund (Congress Speaks) (Part 11 1/2)

By J. Robert Brown

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The CSX case continues to attract attention, some in Congress. Senator Schumer has sent a letter to the SEC indicating concern over the recent decision by Judge Kaplan, noting that he was "disturbed" by the outcome. Mostly it appears to be concern over the remedy in the case (or lack of remedy) actually. Recall that Judge Kaplan found a violation of Section 13(d) but merely enjoined the hedge funds from future violations. There was no penalty for having acquired shares or changed swap positions while the beneficial ownership remained undisclosed. As Schumer noted, "I am considering introducing legislation to correct this gap in the law, and would be very interested in discussing potential remedies, including the implications of granting CSX's request for voting rights sterilization and increased civil penalties, with the SEC.

Perhaps. But there is little that can be done between now and the shareholder meeting on June 25. For anything to happen in connection with that convocation, all eyes will have to be on the Second Circuit, where an appeal is currently pending.

Full post as published by The Race to the Bottom on June 18, 2008 (boomark / email).