April 11, 2014 — To protect and inform investors, publicly traded companies are required by law to file accurate financial reports with the Securities and Exchange Commission (SEC). To ensure that they do, and to deal with the businesses that don’t, the U.S. Congress initiated a whistleblower program as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010. Informants who notify the SEC about businesses that mislead the public with financial misinformation in SEC reports may be rewarded for their bravery in collaborating with the government. Tipsters may be eligible for compensation of up to thirty percent of the funds the government recovers, so long as the government receives over $1 million.
Movie Company Allegedly Failed to Make Necessary Disclosures to Shareholders Concerning Purpose of Transactions Designed to Prevent Hostile Takeover
Lions Gate Entertainment Corp. has settled SEC charges that the motion picture company misled its investors by declining to disclose properly an attempt to escape a hostile takeover bid. Lions Gate will pay $7.5 million to resolve the matter.
In 2010, Lions Gate’s management was engaged in a battle for control of the company with a shareholder who owned more than 37 percent of outstanding stock and had made tender offers to purchase more shares from existing shareholders. To thwart the deal, Lions Gate management concocted a three-part plan — approved at a midnight board meeting — to issue millions of new company shares and place them under the control of a director who also thought the takeover bid was not in the movie company’s best interests.
But Lions Gate didn’t want investors to know about the scheme to defeat the takeover bid. To conceal the true purpose of the transactions, Lions Gate allegedly stated in an 8-K filing with the SEC that the transactions were integral to a debt reduction plan that had been previously announced. Yet no announcement had been made earlier. Lions Gate allegedly also denied that the transactions had been “prearranged” and concealed the scheming that had taken place to ensure that the deal with the friendly director was carried out. In so doing, Lions Gate avoided seeking prior approval from its shareholders, as would have been required under a New York Stock Exchange (NYSE) rule, had the proper disclosures been made.
Whistleblowers Notify SEC about Misleading SEC Reports
Insiders with information about a company’s misleading SEC reports should understand the Dodd-Frank whistleblower program before notifying the government. The SEC fraud lawyers at Waters & Kraus have the experience necessary to safeguard whistleblowers’ interests in cases of financial crime. Contact us or call our securities fraud attorneys at 855.784.0268 to learn how we can help you.