It Has Been an Active Week in Passive Investor News



The Securities and Exchange Commission July 14 issued a new Compliance and Disclosure Interpretation clarifying the interplay between a shareholder’s eligibility to file a Schedule 13G and qualifying for a Hart-Scott-Rodino passive investor exemption.

The C&DI comes just two days after activist investor ValueAct settled claims with the Department of Justice that it had violated the HSR passive investor exemption.

Under Exchange Act Rule 13d-1, an investor may file a short-form Schedule 13G rather than the long-form Schedule 13D if the shareholder has acquired the securities without the intent to influence the issuing company.  This, of course, is a very similar test to the one set out in the HSR passive investor exemption.

The SEC’s new C&DI poses the following question:

Does the fact that a shareholder is disqualified from relying on this HSR Act exemption due to its efforts to influence management of the issuer on a particular topic, by itself, disqualify the shareholder from initially reporting, or continuing to report, beneficial ownership on Schedule 13G?

The short answer? “No.”

Not qualifying for the HSR exemption does not alone preclude a shareholder from filing a Schedule 13G.  However, the SEC makes clear that “the subject matter of the shareholder’s discussions with the issuer’s management may be dispositive,” along with the context in which those discussions occur.  The SEC also provides a few examples of when a shareholder would or wouldn’t be Schedule 13G-eligible.

The C&DI is available here.

For more on ValueAct’s settlement, see this blog.