SEC Advises on Disclosure of Hedge Fund Positions

The beat goes on — in the on-going CSX/TCI litigation before Judge Kaplan of SDNY which is expected to yield an important ruling on the application of the old school reporting requirements of Section 13(d) to the brave new world of hedge funds/derivatives/synthetics. In a recent letter responding to the Court’s inquiry, the Staff of the SEC’s Corp Fin Div took the view that the typical total return swap did not confer the voting or disposition power sufficient to trigger the beneficial ownership reporting requirement under 13D, and that the (so-called) anti-evasion Rule 13d-3(b) reaches only swaps or the like if the intent was to create a “false” appearance. Our memo on the Staff letter, and on the continuing need for reform, is here. The Court, of course, will have the last word, and there remains ample running room.