Corporate & Securities Law

Officers and Directors Not Considered "Passive" under Rule 13d

By broc

Officers and Directors Not Considered "Passive" under Rule 13d

Recently, I received a question about an old blog about how officers and directors are not considered passive under Rule 13d. Jim Moloney of Gibson Dunn notes that one thing that he and another lawyer at the firm didn't cover back in that old blog was the SEC Staff's informal position that if a 13(d) reporting person starts out reporting on Schedule 13D (because they are not eligible to report on Schedule 13G initially), then they can't later move over to a Schedule 13G in reliance on one of the other categories permitting reporting on Schedule 13G (i.e., Rule 13d-1(b), (c) or (d)) unless such person was initially eligible to report on Schedule 13G and simply filed on 13D voluntarily.

In the opposite situation, where a reporting person starts out reporting on a Schedule 13G, then loses his or her 13G eligiblity because the person is no longer "passive" for example, that person would need to amend onto 13D and stay there until such time as 13G eligibility is re-established (e.g., the reporting person becomes "passive" again). At that time, the reporting person could move back to reporting on Schedule 13G again.

So the bottom line is that a person can "re-establish" 13G eligibility and move back to reporting on Schedule 13G, but if the person was never eligible in the first place, and filed an initial 13D, that person can not later move onto 13G simply because they become eligible to report on that form. They would need to sell their position down, below 5%, and then purchase shares crossing the 5% along with the requisite 13G eligibility criteria satisfied and could then file an initial report on Schedule 13G. See Rule 13d-1(h) and footnote 23 and accompanying text in the SEC's 1998 Adopting Release on 13D/G (adopting Rule 13d-1(c)).

JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues

Tomorrow, join us for the rescheduled webcast - "JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues" - as Professors Elson, Davidoff and Cunningham analyze a host of novel provisions in the JPMorgan Chase/Bear Stearns merger agreement.

Full post as published by DealLawyers.com Blog on May 13, 2008 (boomark / email).