Judge's 'serious questions' about Ackman trading in Allergan may fire SEC into action

Bill Ackman

Valeant ($VRX) partner and leading Allergan ($AGN) shareholder Bill Ackman may have won the right to vote his shares at a Dec. 18 special meeting, at which he hopes to upturn Allergan's board in favor of a slate more friendly to the Canadian pharma's $54 billion hostile bid. But thanks to a judge's opinion, he may soon have some additional insider-trading allegations on his hands.

While stopping short of blocking Ackman's vote at the meeting, U.S. District Judge David Carter acknowledged last week that the case presents some "serious questions." And those could raise some eyebrows at the SEC or among other investors who didn't reap the $1 billion Ackman did through quietly building a 9.7% Allergan stake with the knowledge of Valeant's forthcoming offer, Bloomberg says.

"It could get the SEC off the sidelines," Columbia University Law School professor John Coffee told the news service. "Securities laws don't distinguish between the tipper and tippee. They could both have liability."

Allergan has already sued its predators, pointing fingers for insider trading. Ackman, for his part, has said he's all for an SEC review, standing by the notion that he and his hedge fund, Pershing Square Capital Management, did nothing wrong in partnering up with Valeant before the official bid announcement. The commission has been taking a hard look at stock purchases, disclosures and the like for months now, Bloomberg reports, though it hasn't yet taken any public action besides requesting additional information.

Carter, for one, seemed skeptical that Pershing Square could qualify as a co-bidder, which would exempt it from the "disclose or abstain" rule that applies to those with nonpublic, inside information, Bloomberg notes.

All things considered, though, regulators probably won't get in the way of Valeant's takeover quest for the Botox maker, Coffee told the news service.

But Actavis ($ACT) might. In what industry watchers consider a thinly veiled reference to the Dublin drugmaker, Allergan disclosed last week that it was in talks with another wannabe acquirer. In a Friday letter to Allergan's board, Ackman, confident Valeant could outbid Actavis, suggested the California company put itself up for auction.

By entering into exclusive negotiations with Actavis, Allergan is "tipping the scales in Actavis' favor, disadvantaging Valeant and discouraging it from raising its offer," Ackman wrote (as quoted by Reuters).

But whether Valeant comes away victorious--and whether the SEC does act--civil claims against Ackman could take their toll, Cadwalader, Wickersham and Taft lawyer Martin Seidel told Bloomberg. Ackman "made $1 billion that someone else didn't make," he said. That means he has $1 billion in his pocket "waiting to be picked."

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