(September 28 – 16:45 ET) – The Securities and Exchange Commission today brought fraud charges against a German company for publicly denying media reports that it was in merger talks, when, in fact, it was engaged in talks. A ruling that has implications for Canadian firms and merger advisors.
The SEC brought and settled civil administrative fraud charges against E.ON AG, Germany’s third largest industrial holding company which was formerly known as Veba AG, for issuing materially false denials concerning merger negotiations with Viag AG, another German company. Without admitting or denying the findings, E.ON agreed to cease and desist from future violations of the U.S. federal securities laws.
The commission found that from July 29, 1999 to August 31, 1999, Veba falsely denied press reports that it was engaged in merger negotiations with Viag. In reality, as of July 29, the two companies had executed a confidentiality agreement, retained investment bankers and legal advisors, exchanged financial forecasts, and engaged in high-level talks concerning proposed deal structures. On September 1, it finally admitted that it had been engaged in merger negotiations with Viag.
The SEC finds that Veba’s senior management was directly involved in drafting and approving public statements that they knew were false, and that Veba’s denials were part of a policy of absolute denial that was implemented by Veba’s CEO.
The commission indicates that although disclosure practices and laws may differ in other jurisdictions, there is no safe harbour for foreign issuers from violations of U.S. securities laws. The SEC will not apply a different standard to foreign issuers commenting on merger talks.
The SEC’s order against Veba says, “[t]he importance of accurate and complete issuer disclosure to the integrity of the securities markets … to the extent that investors cannot rely upon the accuracy and completeness of issuer statements, they will be less likely to invest, thereby reducing the liquidity of the securities markets to the detriment of investors and issuers alike.”
SEC director of enforcement Richard Walker said, “The reach of U.S. securities laws is not limited by our borders. In today’s global marketplace, false statements made overseas can harm U.S. investors as much as statements made domestically. Today’s case reminds foreign issuers trading on U.S. markets that they remain subject to our fraud laws even when speaking abroad.”
-IE Staff