I came across this on Paul Kedrosky’s blog, and started reading the referenced court case. Not sure what "Blue Horseshoe" is referring to – ?? (maybe I’ll find it on google) – Anyway, very educational. – Ilene
Blue Horseshoe Loves … CSX
Excerpt: "There is riveting reading in the just-decided case of CSX Corporation vs. Children’s Investment Fund. Yes, it’s a court filing, but nowhere else are you likely to get so detailed and lucid a discussion….
Defendants seek to defend their secret accumulation of interests in CSX by invoking what they assert is the letter of the law. Much of their position in CSX was in the form of total return equity swaps (“TRSs”), a type of derivative that gave defendants substantially all of the indicia of stock ownership save the formal legal right to vote the shares. In consequence, they argue, they did not beneficially own the shares referenced by the swaps and thus were not obliged to disclose sooner or more fully than they did. In a like vein, they contend that they did not reach a formal agreement to act together, and therefore did not become a “group”….
Read it all here, right down to the "Blue Horseshoe loves Anacot Steel"-style games Children’s allegedly played in tipping off other hedge funds…" P.K.
A couple more excerpts from the case:
"As for the question whether defendants made prompt disclosure after they formed a “group” within the meaning of Section 13(d) of the Exchange Act, the evidence, as in virtually all such cases, is circumstantial. But it quite persuasively demonstrates that they formed a group many months before they filed the necessary disclosure statement. Their protestations to the contrary rest in no small measure on the premise that they avoided forming a group by starting conversations by stating that they were not forming a group and by avoiding entry into a written agreement. But the Exchange Act is concerned with substance, not incantations and formalities."
Funny, "we’re NOT forming a group here, and there’s no agreement, this is not going in writing, however…"
"A long party to a TRS referencing equity in a public company gains economic exposure to the equity. In other words, it is exposed to essentially the same potential benefits and detriments as would be the case if it held the referenced security, and it gains that exposure without the need for the capital to fund or maintain such a purchase directly. This may permit such investors to operate with greater leverage or a lower cost than might be the case if they bought the security directly. But those are by no means the only reasons 19 motivating long parties to engage in TRSs. There can be tax advantages. Most importantly for purposes of this case, if the long party to a cash-settled TRS is not the beneficial owner of the referenced shares – a question hotly contested here – one interested in amassing a large economic exposure to the equity of a registered company may do so without making the public disclosure that is required when a person or group acquires 5 percent or more of the outstanding shares.
The avoidance of public disclosure can confer significant advantages on the long party. By concealing its activities, it may avoid other investors bidding up the referenced stock in anticipation of a tender offer or other corporate control contest and thus maximize the long party’s profit potential. Second, it permits a long party who is interested in persuading an issuer to alter its policies, but desirous of avoiding an all-out battle for control, to select the time of its emergence to the issuer as a powerful player to a moment of its choosing, which may be when its exposure is substantially greater than 5 percent. In other words, it permits a long party to ambush an issuer with a holding far greater than 5 percent."
Okay, got it. Thanks Allan!:
Blue Horseshoe LOVES Anacot Steel 
by Larry Levin, AvidTrader, posted Mar 3, 08.
Excerpt: "Blue Horseshoe loves Anacot Steel" was a stock tip from the 1987 film "Wall Street." I thought of this memorable line during today’s massive reversal from the 2% sell-off because the rally was again started by a non-event "news flash" on television. For a second time Charlie Gasparino broke into regular programming to tell us nothing new: Ambac is working on a bailout and it’s almost a done deal. Well, we’ve heard that before…many times.
Who is feeding this information to Charlie? Everyone knows how desperate the market is for good news, so those feeding him the same old story could be profiting handsomely, like Michael Douglas in Wall Street with "Blue Horseshoe loves Anacot Steel." Maybe it’s a banker in the consortium? Maybe it’s someone in Ambac management? Maybe it is nobody at all, but I still wonder why no-news is now "breaking news." Where is the SEC?"
