SEC guidance could force disclosure of activist backers
SEC guidance says some Schedule 13D filers must identify parties backing activist campaigns, raising concerns among funds about sidecar vehicles and effects on smaller managers.
The SEC issued recent guidance saying certain investors who file Schedule 13D must identify parties backing their activist campaigns. The guidance targets so-called sidecar vehicles — special purpose entities that allow outside investors to finance individual campaigns without being publicly linked to the effort.
Sidecars let investors receive advance briefings on an activist manager’s planned strategy and the target company while remaining off the public record. The guidance makes clear that parties supporting such vehicles must be disclosed in Schedule 13D filings when their role meets the filing obligations, according to lawyers familiar with the guidance.
Lawyers and industry participants say the requirement could affect how activists raise capital. Sebastian Alsheimer, head of shareholder engagement and activism defence at Cleary Gottlieb Steen & Hamilton, described the SEC position as a significant development for Schedule 13D reporting.
Advisers expect the greatest practical impact on smaller funds that rely more heavily on campaign-specific sidecars than larger, established activist firms. An activist manager, speaking on condition of anonymity, warned that companies might use the guidance to adopt bylaws that require dissident shareholders seeking board seats to disclose their financial backers, a move that could discourage some proxy contests.
A recent dispute illustrates the issue: medical device maker Masimo amended its bylaws during an activist campaign to require investors nominating directors to disclose backers. Politan Capital challenged the provision in court, and Masimo later removed the requirement from its charter.
The guidance may reduce anonymity for investors who prefer not to be publicly linked to a dissident campaign. Market participants are watching how the SEC guidance will be applied in practice and whether companies will adopt charter or bylaw provisions that invoke the guidance to demand disclosure from potential challengers.
Legal advisers noted that the effect of the guidance will depend on how regulators apply it alongside court decisions and company governance rules, and that those interactions will shape how the guidance affects shareholder activism going forward.
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