The U.S. Securities and Exchange Commission is investigating whether petroleum refiner CVR Energy failed to properly inform shareholders about fees it would have to pay banks for their help in defending it from investor Carl Icahn’s takeover bid.
The SEC probe was revealed in court documents filed by CVR as part of a lawsuit in which it has accused lawyers at Wachtell, Lipton, Rosen & Katz of malpractice for signing off on the disclosures about how it was compensating Goldman Sachs Group and Deutsche Bank AG.
After a majority of CVR shareholders ultimately accepted Icahn’s $30-per-share tender offer in 2012, the banks sued the company for refusing to pay more than $36 million in transaction fees.
“[B]ut for defendants’ dereliction of their professional obligations and duties to CVR, CVR would not be in messy, expensive, and substantial lawsuits for tens of millions of dollars with Goldman and Deutsche, or be the subject of an investigation by the SEC,” CVR said in a proposed amended complaint against Wachtell Lipton.
Wachtell has filed its own suit against CVR, accusing Icahn of a “bullying campaign” against “lawyers who help clients resist his demands.”
“The dispute underscores the animosity between Mr. Icahn and Wachtell co-founder Martin Lipton, a frequent critic of activists, who has accused them of harming the economy and impeding boards and management from running companies for the long run,” The Wall Street Journal reported.
CVR filings at the time of the takeover battle described as “usual and customary” the fees to be paid to the banks. According to court documents, the banks would receive either a flat $9 million each if Icahn were successfully rebuffed or a cut of CVR’s total value in the event of a sale.
CVR has alleged that Wachtell Lipton never explained to its board that the banks stood to earn far higher fees if a takeover defense failed than if it succeeded.
In a letter Tuesday to a federal judge that accompanies the amended complaint, a CVR attorney said the company has known about the SEC probe for some time but had only learned in the past week that “the SEC intends to expand its inquiry and proceed with formal testimony.”