SEC Enforcement in the PIPE Market: Actions and Consequences
46 Pages Posted: 3 Apr 2012 Last revised: 19 Jun 2012
Date Written: April 3, 2012
Abstract
The SEC launched in 2002 enforcement actions against investors involved in PIPE (Private Investments in Public Equity) transactions. We describe the legal ramifications of this enforcement initiative, and document dramatic contemporaneous market-wide changes in the contractual structure of PIPEs. PIPEs in the post-action period included fewer aggressive repricing rights and more trading restrictions. However, PIPEs in the post-action period also included more investor protections and fewer issuer rights. These results suggest that the SEC’s enforcement enticed investors to substitute non-SEC-targeted contractual features for targeted ones. Our paper sheds new light on the role of legal enforcement on financial contract design.
Keywords: SEC, enforcement, private investments in public equity, contract design
JEL Classification: G14, G18, G24, K12, K22, K42
Suggested Citation: Suggested Citation
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