FYI - I did research GFL and found the following information and wanted to share it with everyone.
DISSENT OF COMMISSIONER STEVEN M.H. WALLMAN
In the Matter of GFL Ultra Fund Ltd.
Preliminary Note 6 to Regulation S states "[s]ecurities
acquired overseas, whether or not pursuant to Regulation S, may
be resold in the United States only if they are registered under
the Act or an exemption from registration is available." After
the adoption of Regulation S in 1990, confusion existed outside
of the Commission as to when purchasers of securities placed
offshore pursuant to Regulation S were permitted under the U.S.
federal securities laws to resell such securities back into the
United States markets. There also was (and still is) confusion
regarding whether hedging (such as short sales) by purchasers of
Regulation S securities may take place in the U.S. markets within
the restricted period.
Some members of the bar interpreted the 40-day or one-year
restricted periods to be the equivalent of a holding period
analogous to the Rule 144 safe harbor under the Securities Act. 1/
These legal practitioners advised their clients that the
expiration of the restricted period provided a safe harbor for
U.S. resales by purchasers of Regulation S securities, and that
no further analysis as to whether the seller could be deemed a
"statutory underwriter" within the meaning of section 2(11) of
the Securities Act was necessary.
As to hedging, since Regulation S itself was silent on the
subject, some members of the bar, including counsel for Ultra,
looked to Rule 144 interpretations for guidance on whether
hedging could take place within the restricted period.
Since 1990, there have been repeated calls for guidance from
the Commission on these points. In addition, over time, the
Commission and its staff became aware of a multitude of abusive
practices where Regulation S was nominally being used to conduct
unregistered securities offerings in the United States. In the
absence of clearcut guidance from the Commission, some entities,
such as Ultra, chose to take aggressive advantage of the business
opportunities presented.
_______________________________
/1 Under Rule 144, any affiliate or other person who sells
restricted securities shall be deemed not to be engaged in a
distribution of such securities and therefore not to be an
underwriter within the meaning of section 2(11) of the Securities
Act if all of the conditions of the rule, including the
satisfaction of the holding period, are met.
==========START OF PAGE 2======
Despite the confusion and uncertainty, it wasn't until 1994
that the Commission and its staff began informally making
statements about problems in the Regulation S area. The
Commission failed to make any formal pronouncements regarding
Regulation S until the issuance of the Problematic Practices
release in June 1995. 2/ Finally, in February of this year, the
Commission proposed changes to Regulation S in order to stop the
abusive practices. 3 / By the time the latter two releases were
issued, Ultra already had ceased its trading strategy involving
Regulation S securities.
In the February release, the Commission clearly stated that
the restricted period under Regulation S was never intended to be
analogous to a holding period under Rule 144, that it did not
provide a safe harbor for U.S. resales by purchasers, and that
resales into the United States without registration must be
evaluated under a "statutory underwriter" analysis regardless of
the issuer's compliance with Regulation S. The Commission also
proposed changes to both Regulation S and Rule 144 to deem equity
securities of U.S. issuers placed offshore pursuant to Regulation
S as restricted securities within the meaning of Rule 144. /4 If
adopted, offshore purchasers wishing to resell these securities
into the U.S. markets must either register the resale, comply
with Rule 144 (including the one year holding period), or find
some other exemption from registration. These changes should
provide long-needed clarity and should fix the problem.
With regard to hedging, in the Problematic Practices
release, the Commission raised concerns about hedging in the U.S.
markets by purchasers of Regulation S securities during the
restricted period. In both the February release and its
companion Rule 144 proposing release, /5 the Commission continued
_______________________________
/2 Problematic Practices Under Regulation S, Securities
Act Release No. 7190 (June 27, 1995).
/3 Offshore Offers and Sales, Securities Act Release No.
7392 (February 20, 1997).
/ 4 Equity securities of foreign issuers where the
principal market for those equity securities is in the United
States also will be deemed restricted securities under the
proposals.
/5 Revision of Rule 144, Rule 145 and Form 144, Securities
Act Release No. 7391 (February 20, 1997).
==========START OF PAGE 3======
to raise questions and concerns regarding hedging by purchasers
of unregistered securities -- including the Section 5
ramifications of hedging. While continuing to seek comment, the
Commission has not yet made any definitive statements regarding
what forms of hedging are or are not permissible with regard to
unregistered securities.
Given the confusion prior to June 1995 and February 1997 in
legal interpretations, the relative lack of clearcut guidance
from the Commission or its staff during the period of time that
Ultra engaged in its trading strategy, the partial regulatory
solution already put on the table in form of the proposed changes
to Regulation S, and the continuing uncertainty regarding the
impact of hedging, I do not think it is appropriate to bring an
"after the fact" enforcement case at this time, regardless of the
fact that the party is settling. In addition, to initiate
proceedings against, and accept a settlement from, only Ultra --
an entity in the process of winding up its activities -- and not
charge its related entity (who also engaged in the same trading
strategy prior to Ultra), or any officer or director, or even the
lawyers here, merely highlights the legal confusion surrounding
the case. My views should not be construed, however, as a
statement that Ultra's actions were appropriate or in compliance
with the federal securities laws -- just that enforcement action
in this instance is not appropriate. Therefore, I respectfully
dissent. |
