By Sarah N. Lynch
WASHINGTON, March 13 Lions Gate Entertainment
Corp admitted on Thursday it failed to disclose to
investors in 2010 the steps it took to thwart a hostile takeover
bid by billionaire Carl Icahn, as part of a settlement with U.S.
Lions Gate, which produces popular movies and television
shows like "The Hunger Games" and "Mad Men," also agreed to pay
$7.5 million to settle the charges, the Securities and Exchange
It is the first time in about 30 years that the SEC has
brought a case against a company that is the target of a hostile
tender offer, the SEC's enforcement director, Andrew Ceresney,
The SEC's charging documents do not cite Icahn by name, but
the case clearly relates to a highly publicized spat between
Icahn and Lions Gate in 2010.
The company ultimately defeated Icahn's aggressive takeover
A spokesman for Lions Gate said the money to pay the
settlement was accrued during the quarter that ended Dec. 31.
The settlement marks the sixth time now that the SEC has
managed to extract an admission of wrongdoing from a defendant
as part of a new tougher settlement policy announced last June
by SEC Chair Mary Jo White.
Ceresney told reporters in a conference call that the SEC
will continue to monitor conduct in hostile tender offers.
"Given the resurgence of (merger and acquisition) activity
in the market and the vital importance of disclosure obligations
during a tender offer battle, we want to emphasize that the
Enforcement Division intends to vigilantly police misconduct
that can occur during a tender offer battle," he said.
According to the SEC, Lions Gate took steps on July 20,
2010, to put more than 16 million shares into the hands of a
Those transactions were designed to bolster pro-company
voting rights and dilute Icahn's 37 percent ownership in company
In SEC public filings, however, the company claimed the
transactions were part of previously announced plan to reduce
some of its debt load, and it did not tell the market that its
actions stemmed from its effort to block the takeover.
In addition, the SEC said such a debt-reduction plan had
never been announced in the first place.
The "friendly director" discussed throughout the complaint
is not accused of any wrongdoing by the SEC, or referenced by
SEC filings show that MHR Fund Management, which is
controlled by Mark Rachesky, a Lions Gate director, purchased
$99.7 million in notes on July 20, 2010, and converted them into
approximately 16 million shares at $6.20 a share.
Those dates and amounts match up with the details of the
transactions in the SEC's lawsuit.
Rachesky has since become the chairman of Lions Gate.
Spokespeople for Lions Gate and for MHR declined to comment
on the references to the "friendly director" in the SEC's
Icahn's bid of July 20, 2010, for Lions Gate came at the end
of a 10-day truce with the studio.
At midnight, when the truce expired, the company board met
and approved a series of transactions, including exchanging
convertible notes and loosening time restrictions under its
insider-trading policy so that the director could ultimately
convert the notes to stock.
The SEC said the company should have also obtained prior
approval from its shareholders before selling the stock under
certain New York Stock Exchange rules, in addition to disclosing
the reasons for its actions.