SEC Enforcement in the PIPE Market: Actions and Consequences

46 Pages Posted: 3 Apr 2012 Last revised: 19 Jun 2012

See all articles by Ola Bengtsson

Ola Bengtsson

Lund University School of Economics and Management; Research Institute of Industrial Economics (IFN)

Na Dai

SUNY at Albany - School of Business

Clifford Chad Henson

Texas A&M School of Law; Property & Environment Research Center

Date Written: April 3, 2012

Abstract

The SEC launched in 2002 enforcement actions against investors involved in PIPE (Private Investments in Public Equity) transactions. We describe the legal ramifications of this enforcement initiative, and document dramatic contemporaneous market-wide changes in the contractual structure of PIPEs. PIPEs in the post-action period included fewer aggressive repricing rights and more trading restrictions. However, PIPEs in the post-action period also included more investor protections and fewer issuer rights. These results suggest that the SEC’s enforcement enticed investors to substitute non-SEC-targeted contractual features for targeted ones. Our paper sheds new light on the role of legal enforcement on financial contract design.

Keywords: SEC, enforcement, private investments in public equity, contract design

JEL Classification: G14, G18, G24, K12, K22, K42

Suggested Citation

Bengtsson, Ola and Dai, Na and Henson, Clifford Chad, SEC Enforcement in the PIPE Market: Actions and Consequences (April 3, 2012). Illinois Program in Law, Behavior and Social Science Paper No. LBSS12-17, Available at SSRN: https://ssrn.com/abstract=2033950 or http://dx.doi.org/10.2139/ssrn.2033950

Ola Bengtsson (Contact Author)

Lund University School of Economics and Management ( email )

P.O Box 7080
Lund
Sweden

HOME PAGE: http://www.olabengtsson.com

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Na Dai

SUNY at Albany - School of Business ( email )

1400 Washington Ave.
Albany, NY 12222
United States

Clifford Chad Henson

Texas A&M School of Law

1515 Commerce St.
Fort Worth, TX 76102
United States

Property & Environment Research Center ( email )

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

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