June 24, 2013

SEC and Revlon Settle Allegations of Deceptive Acts in "Going Private" Transaction

Arnold & Porter Advisory

On June 13, 2013, the Securities and Exchange Commission announced that it had reached a settlement with Revlon, Inc. regarding allegations that Revlon deceived minority shareholders in connection with a 2009 "going private" transaction. Under Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 thereunder issuers are prohibited from taking fraudulent or deceitful actions in connection with a "going private" transaction. The SEC's rules for "going private" transactions require disclosure, among other things, of any report, opinion, or appraisal from an outside party that is materially related to the transaction. The SEC alleged that Revlon engaged in a variety of deceptive acts in order to avoid disclosure of a third-party financial advisor's determination that the "going private" transaction would not provide adequate consideration for minority shareholders. Revlon did not admit or deny the SEC's findings set forth in the cease-and-desist order, but agreed to cease and desist from committing any future violations and to pay an $850,000 penalty. Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 thereunder have rarely been the subject of SEC enforcement action.

This settlement may signal that, just as the Staff of the Enforcement Division of the SEC is more generally expanding its enforcement reach into the area of private equity firms -- which are often involved in going private transactions -- its enforcement priorities may also be expanding into areas that have been historically addressed by private litigants in civil actions brought under state corporate fiduciary law.


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