Two activist investors have been charged with failing to properly disclose material information during a series of campaigns to influence or take control of microcap companies.
The U.S. Securities and Exchange Commission said Jeffrey E. Eberwein and Charles M. Gillman began collaborating on activism efforts in early 2012, teaming up on three of them with mutual fund adviser Heartland Advisors.
In each of the campaigns, the SEC said in an administrative order, investor groups including Eberwein and Gillman collectively owned more than 5% and sometimes even more than 10% of the target companies’ shares, but the required regulatory filings were “either incomplete, untimely, or altogether absent.”
The campaigns targeted five microcap companies — Digirad, Aetrium, NTS, Analysts International, and Hudson Global. Without admitting or denying the findings, Eberwein and Gillman agreed to pay penalties of $90,000 and $30,000, respectively, while Heartland agreed to pay $180,000.
“Full, fair, and accurate disclosures from all parties in a battle for corporate influence or control are critically important to investors particularly when they are called upon to make decisions about their investments,” Gerald Hodgkins, associate director of the SEC Division of Enforcement, said in a news release. “Investors in these companies were deprived of key facts needed to make informed investment decisions.”
According to the SEC, Eberwein and Gillman are longtime friends and financial professionals. Their first activist campaign allegedly involved Digirad, in which Heartland clients were investors.
In a February 2012 regulatory filing, Heartland certified the shares were “not held for the purpose or with the effect of changing or influencing the control of the issuer,” but by early 2013, the SEC said, it had effectively taken control of Digirad, with Gillman, Eberwein, and an associate of Gillman occupying three of the five board seats.
“Given Heartland’s efforts to change and influence the composition of Digirad’s board … it should have filed a Schedule 13D by no later than March 2012 to supersede” the February 2012 filing, the SEC said.
The commission also fined Lone Star Value Management, a hedge fund adviser headed by Eberwein, $120,000.