Perry hedge fund settles with SEC over Mylan stake

Date: Wednesday, July 22, 2009
Author: Joseph A. Giannone, Reuters

Hedge fund firm Perry Corp will pay $150,000 to settle accusations that it failed to report a substantial stake in Mylan Inc (MYL.O), purchased to support a proposed 2004 takeover of King Pharmaceuticals (KG.N), the U.S. Securities and Exchange Commission said on Tuesday.

The New York-based firm, led by Richard Perry and with $8.8 billion under management at the end of March, settled without admitting or denying the allegations.

Perry had argued that it was not required to immediately disclose the stake in Mylan, saying the shares were acquired in the "ordinary course of business."

The SEC strongly disagreed, saying the purchases were not an "ordinary course" activity and that Perry should have revealed within 10 days its Mylan stake had surpassed 5 percent.

Perry officials were not immediately available for comment on the settlement.

The SEC said Perry was sitting on a $20.4 million paper loss on its investment in King before the Mylan offer was announced in July 2004. The commission noted the Mylan deal represented a 61 percent premium to King's stock price and would help Perry profit from King shares it began buying in October 2001.

In September of 2004, Perry acquired 26.6 million shares, or 9.9 percent of Mylan's shares, to vote in favor of the Mylan-King merger and counter opposition from other shareholders.

At the same time, Perry hedged that exposure through swaps with Bear Stearns and Goldman Sachs (GS.N). As a result of these moves, Perry could vote alongside other Mylan shareholders yet had no net economic interest.

Accounting for Perry's costs and the interest it earned on its various positions, the SEC said Perry paid $5.8 million to acquire voting rights to almost ten percent of Mylan's shares.

As of Nov. 11, 2004, the day on which Perry held its largest King position, Perry stood to capture a $22 million gain on risk-arbitrage trades it had made since early September, the SEC alleged.

The merger plans were terminated in early 2005, with Mylan saying it was unable to agree on a revised deal with King.