By Liz Hoffman And David Benoit
The Securities and Exchange Commission has waded into a bitter
fight some of the biggest names in merger advice are waging with
CVR Energy Inc., investigating whether the petroleum refiner made
misleading disclosures to shareholders during its 2012 takeover by
activist investor Carl Icahn.
The SEC is looking into whether CVR adequately disclosed to
shareholders that its bankers at Goldman Sachs Group Inc. and
Deutsche Bank AG, which were helping defend it against Mr. Icahn's
takeover bid, stood to receive a higher fee if he succeeded than if
the company remained independent, according to a court filing.
There "appears a significant risk that the SEC will proceed with
enforcement or other action against CVR," according to a letter
filed late Tuesday by the company's lawyer in New York federal
court.
The company, now controlled by Mr. Icahn, is suing its former
lawyers at Wachtell, Lipton, Rosen & Katz for malpractice for
signing off on its disclosures at the time.
An SEC spokesman declined to comment on the matter. Lawyers for
Wachtell didn't respond to requests for comment.
A spokeswoman for Sugar Land, Texas-based CVR, which also
manufactures nitrogen fertilizer, wasn't available either. Deutsche
Bank and Goldman declined to comment.
The dispute underscores the animosity between Mr. Icahn and
Wachtell co-founder Martin Lipton, a frequent critic of activists,
who has accused them of harming the economy and impeding boards and
management from running companies for the long run.
In January 2012, Mr. Icahn's firm took a stake in CVR and urged
the company to sell itself, before making an offer himself the next
month. The company rejected the bid--of $30 a share, or about $2.6
billion--but Mr. Icahn succeeded with a tender offer and he
currently owns about 82% of the common shares.
After Mr. Icahn took control, CVR's new board refused to pay the
banks the roughly $36 million they claimed they were owed, leading
to a number of lawsuits between the sides.
The banks were to be paid in one of a number of ways, according
to court documents, including a flat $9 million each if Mr. Icahn
were successfully rebuffed, or a cut of CVR's total value in the
event of a sale. CVR has said its board never understood, and the
law firm never explained, that if CVR were sold to Mr. Icahn, the
banks would earn more, despite being hired to stop that from
happening.
CVR has also said it wouldn't have agreed to such a fee
arrangement had the board been aware of it.
"But for defendants' dereliction of their professional
obligations and duties to CVR, CVR would not be in messy, expensive
and substantial lawsuits for tens of millions of dollars with
Goldman and Deutsche, or be the subject of an investigation by the
SEC," Tuesday's filing says.
Wachtell has denied the allegations and filed its own lawsuit
against CVR, accusing Mr. Icahn of a "bullying campaign" against
"lawyers who help clients resist his demands."
Goldman and Deutsche Bank separately sued the company to recoup
their fees. A judge in September awarded them about $18.5 million
apiece, which CVR is appealing. Wachtell received its fee, which
hasn't been disclosed, prior to the Icahn deal.
Write to Liz Hoffman at liz.hoffman@wsj.com and David Benoit at
david.benoit@wsj.com
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