SEC Enforcement of the PIPE Market: Actions and Consequences

A Global Analysis of Private Investments in Public Equity

“…The PIPE announcement reaction deteriorates after 2003 across all security types. Bengtsson et al (2014) also show an underperformance during 2003-2006 and investigate whether a series of SEC's actions in 2003 to limit the potential of stock price manipulation 12 around PIPEs was the reason for the underperformance, but find no evidence to support this. In addition, as illustrated in Figure 2, the negative shift in the market reaction around PIPEs extends to non-US markets.…”

“…Structured PIPEs amount to just 6.6% of the total issues and have declined in popularity over the years. This can be either due to the bad reputation these issues have received with regard to potential price manipulation through short sales (Hillion and Vermaelen, 2004) or to a turn towards issuer-friendly contracts with better investor protection terms and fewer repricing rights, resulting from SEC investigations to limit price manipulation around PIPEs in 2002 (Bengtsson et al, 2014). The ownership structure of PIPE issuers also differs.…”

Death spiral PIPEs: a reconsideration of the evidence

“…We incorporate these variables in our Heckman (1979) sample selection bias correction. The literature also reveals return differences for PIPE firms that have: (i) hedge funds as lead investor (Brophy, Ouimet, and Sialm 2009;Chaplinsky and Haushalter 2010;Brown et al 2012); (ii) issues post-2002 (Bengtsson, Dai, and Henson 2014); (iii) multiple PIPE issues (Hillion andVermaelen 2004, Floros andSapp 2012); and (iv) issues across industry (Ellis and Twite 2008). We incorporate these variables in our analysis of abnormal returns for PIPE firms.…”

“…However, at the same time, the SEC also introduced increased investor protection and fewer issuer rights (see Bengtsson, Dai, and Henson 2014). The issuing firms lost the court cases for a number of reasons.…”

“…Although ultimately unsuccessful, the court cases did cause the Securities and Exchange Commission (SEC) to intervene to ensure that hedge funds had fewer aggressive repricing rights and more trading restrictions. However, at the same time, the SEC also introduced increased investor protection and fewer issuer rights (see Bengtsson et al ., 2014). The issuing firms lost the court cases for a number of reasons.…”