Are You An Investor Or A Board Member First?

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As you can imagine, I have all kinds of Google Alerts set so I see stories as soon as they are reported. It’s even better when I see stories before they are reported, but that’s more ambition and serendipity than a realistic reality for a girl blogger sitting in her living room in her sweats, looking out the picture window towards the Ferrara Bakery .

I have Alerts set for all the Big 4, BDO Seidman and BDO Stoy Hayward, given the imminent nature of potential news about their future, Soc Gen and Societe Generale, in case another rogue trader takes advantage of this poor bank and a few others. 
I put them on and take them off as the world turns.

This story actually came up as a headline from Securities Law 360, the newsletter for legal and compliance professionals. I can’t afford a subscription, but if I see something interesting come up via the free email alert, I look it up and find a free source.

I’m not sure how I feel about this story. On the surface, it looks like a bunch of hedge fund gorillas, trying to harass a company and its small-time auditors into doing what they want so they can get their money out.

However, in the case of hedge fund activist investors, I have to ask… Is anyone surprised? 

They go in with money for those who need it. They sit on your board and demand to be heard and have their interests considered. After all, you have their money and everyone knows hedge funds have shorter rather than longer term horizons.  There’s always an exit strategy.
They see stuff happening by the good old boys who are running the company and who don’t realize that they’re not in charge anymore. You took money for the hedge fund. You’re not the big wheeler dealer anymore. You answer to the hedge fund, like it or not.

I am reminded of the Ceridian case, where similar conflicts occurred. Ceridian, had a lot of shenanigans going on and various executives and activist investors tried to stop them. 

For the sake of their company and for the sake of their own investments. 
Because activist investors are shareholders, too.

The two audit firms, Goodman and Co. and Reznick Group, have been recently inspected by the PCAOB and no quality exceptions were found in either case..

Costa Brava Officers Smacked Down Over Board Seat Use

Boston hedge fund Costa Brava has had no luck in the courtroom of Judge Albert Matricciani in its battle with defense contractor Telos Corp. Its string of unpleasant experiences with him continued this week.

Matricciani, of Baltimore City Circuit Court, had already dismissed the activist hedge fund’s battle to have the company put into receivership and dissolved, and said at the time that the fight had “come to an end, at least in this forum.”

Wishful thinking, perhaps: The judge last month issued a preliminary injunction against the two Costa Brava officers who won election to Telos’ board of directors last year, barring them from contact with the company’s former, current and future auditors after Telos alleged the two made repeated threats against its last two independent auditors, leading to the resignation of both.

According to Telos, auditor Goodman & Co. quit after being sued by Costa Brava, and its successor, the Reznick Group, resigned in April “after receiving threatening communications from Costa Brava.”

Matricciani ruled that the conduct of Seth Hamot and Andrew Siegel “indicates that they put their interests ahead of the corporation they were supposed to be serving, and sought to disrupt the company’s essential relationships to serve their own ends.” The judge added, “Telos is likely to demonstrate the their conduct was not just wrongful, but unlawful” under the Sarbanes-Oxley Act…


Here’s another one where a judge is protecting the auditors.

A New York judge has rebuffed an attempt by liquidators of an “imploded” Cayman Islands hedge fund to seek $292 million from its allegedly negligent accountants. A Cayman Islands court had appointed the liquidators of Beacon Hill Master to pursue claims on the fund’s behalf. But the Manhattan judge held the liquidators were barred from bringing claims against the fund’s auditor, Ernst & Young Cayman Islands, because the wrongful conduct of the fund’s investment managers “is imputable” to the fund itself.


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