US SEC probes activist investors for possible secret collaboration to target firms

The US Securities and Exchange Commission (SEC) is probing some activist investors to understand if they secretly collaborated to acquire companies in violation of the country's rules.

The Wall Street Journal, citing people familiar with the matter reported that the SEC's enforcement division has recently opened multiple investigations and sent requests for information to a number of hedge funds. The names of the funds and the companies targeted by them are yet to be revealed.

The SEC is investigating whether certain investors coordinated their efforts without filing appropriate disclosures, as federal securities regulations require investors who jointly agree to buy, sell or vote securities to disclose those arrangements.

The investigation comes as activist hedge funds have recently become a major force in the corporate world. The funds often accumulate stakes in companies and force companies to go for measures such as increased share buybacks and asset sales.

Activists sometimes tip potential hedge fund allies to their trading plans, a Wall Street Journal investigation found in 2014. The practice is not illegal in the US as long as they do not coordinate their trades.

The SEC has been taking a more hands-off approach to regulating activists, despite appeals from firms and their advisers to make the funds' trading more transparent.

However, the regulator has recently increased its scrutiny of trading disclosures more broadly and the investigations on activist funds are part of that effort, the sources told WSJ.