Film company Lionsgate Entertainment has admitted it violated SEC rules in 2010 when thwarting a hostile takeover.
Though the SEC did not give names in announcing a civil settlement, Lionsgate director and former Carl Icahn protégé Mark Rachesky at the time was fending off a takeover from his old boss.
Lionsgate has agreed to pay a $7.5 million fine.
“This is the first case like this in 30 years,” Andrew Ceresney, director of the SEC’s division of enforcement, said in a call with reporters.
Lionsgate violated an SEC rule of not informing shareholders that a tender offer was being made during a proxy battle.
At the time, Lionsgate allegedly swapped $100 million in notes it owed to Kornitzer Capital Management for a similar amount of notes that could be converted into stock.
Rachesky then immediately bought those notes from Kornitzer and converted them into common shares. That diluted Icahn’s stake and made it nearly impossible for him to buy the business.
“Lionsgate management knew that a large, direct sale of stock from the company to the friendly director would advance management’s strategy as it would put voting rights in the hands of someone supportive of management and dilute the percentage of ownership of those hostile to management. However, such a transaction, commonly known as a ‘defensive recapitalization,’ would have required prior approval from the company’s shareholders under a NYSE rule and was not practical given the time constraints the company faced in defending against the shareholder’s takeover effort,” the SEC complaint says.
Declining to provide more details, the SEC said its investigation is continuing.
Lionsgate shares have risen greatly since 2010.
In midday trading, shares fell 2.6 percent to $32.38.