VIVUS, Inc. (NYSE:VVUS) shares have begun to pull back since last week’s news that a foreign firm might make a buyout offer. The source of that news was a 13D filing with the Securities and Exchange Commission. We identified six suspicious things about it last week, and we’ve now spoken with some experts who back up most of our theories and have shed some more light on exactly why this filing may be suspect.

Vivus

Once again, this isn’t to say that anything is definitely wrong with that filing, but these are some concerns investors should think about before buying into the belief that the firm in question will actually make a buyout offer. Braden Perry, who specializes in securities and financial services law at Kennyhertz Perry in Kansas City, summarized these concerns in one simple statement: “The main point is that this is a suspicious filing at a suspicious time with no real credibility behind it.”

And these concerns focus entirely on the firm that filed the 13D—Aspen Investment Fund—and not on VIVUS, Inc. (NYSE:VVUS) itself, which may simply have been caught in the crossfire on this one.

How options and contracts work

Buying options and forward contracts can get a bit muddy for investors who have never done this. So let’s shed some light on exactly what’s happening in this 13D filing for VIVUS, Inc. (NYSE:VVUS). Boston-based securities and corporate governance attorney Howard Berkenblit of global law firm Sullivan & Worcester provided this very thorough and clear explanation of what’s happening here:

“These are agreements to buy shares at a future date,” Berkenblit explained in an email. “Generally Aspen would purchase call options and enter into forward contracts to acquire shares if they believe the price will increase. The forward contracts can be settled in cash or delivery of shares. Typically the option is just that, an option – if the market price is not above the contract price at the date it becomes exercisable, there would be no reason to exercise it and the option would expire.

“A forward contract is more of a hedge and involves risk that if the price has not increased, the party that purchased the contract might have to make a payment of the difference in price. If the price has increased, the other party either delivers the shares at the agreed upon price or cash to account for the increase in share price.”

Aspen Investment Fund has no skin in Vivus

The biggest concern raised by both the attorneys we spoke with was the fact that Aspen Investment Fund, the filer of the 13D, technically has no real stake in VIVUS, Inc. (NYSE:VVUS). The firm only has the right to purchase shares in the future through options and contracts. Perry said using the word “may” in the filing raises some red flags.

“People hold stock in certain ways for many reasons, be it liquidity, tax reporting, strategic diversification,” Perry told ValueWalk. “Here, however, Aspen holds no current stock. It’s all contingent stock that may or may not happen. This is suspicious, as it has no stake in the game now, and only has financial benefit to the stock price at a later date. They ‘may’ be beneficial owners. It never says they are.”

Aspen might never actually own Vivus stock

Berkenblit noted as well that the purchase of only options and contracts could be suspect. He said that Aspen is required to file a 13D about shares it has the right to acquire within the next 60 days or if it has “the intent to influence control of the company,” which he believes looks to be the case in this situation.

In other words, it followed the rules, even though it technically doesn’t own any VIVUS, Inc. (NYSE:VVUS) shares yet—and might never own any. He said they do have some monetary risk for the forward contracts they own, but that downside is limited compared to the downside they would have if they bought the stock outright.

“Aspen doesn’t seem to really have skin in the game,” Berkenblit told ValueWalk. “They are speculating that the stock will go up and at the same time fueling that speculation by suggesting they might – but might not – make an acquisition offer by mid-June.  Of course, if they included disclosure about their potential acquisition offer solely to cause the stock price to increase so they could profit from their derivative contracts, that would likely be fraud.  On the other hand, the expiration dates for the option and in particular the forward contracts are after the anticipated June acquisition offer date.”

Perry noted, however, that Aspen Investment Fund used the term “American-style call options” in its filing. He says that term gives the firm the right to exercise those contracts before they expire on July 19. The forward purchase contracts, according o the filing, is to buy shares of VIVUS, Inc. (NYSE:VVUS) at some point in the future before July 19 at a price between $4.62 and $4.88 per share. Aspen said if it makes an offer for Vivus, it will do so by June 13.

Does Aspen actually intend to make an offer for Vivus?

We also noted last week that it’s fairly unusual for a firm to announce that it might make an offer to buy a company so early. Berkenblit agreed with us on this one as well.

“This varies, but to say they will make an offer two weeks in the future seems unusual,” the attorney told ValueWalk. “Typically the offer would immediately follow or be simultaneous with a filing like this, or else the filing would instead be more general about possible intentions until an offer is more imminent and more definite than just being ‘contemplated’.”

He also said he believes Aspen may have overstated its stake in VIVUS, Inc. (NYSE:VVUS) slightly. In the 13D filing, the firm said it held 9.65% of the company’s outstanding shares, but Berkenblit estimated it as being closer to 8.8%.

Aspen Investment Fund isn’t registered in the U.S.

We also noted last week that Aspen Investment Fund, the firm that said it “may” buy shares of VIVUS, Inc. (NYSE:VVUS) and might make an offer to buy the company, isn’t registered with U.S. regulatory authorities. However, both Perry and Berkenblit told us that it isn’t necessary for all firms to register with them to buy and sell U.S. stocks.

Berkenblit made the further point that despite the firm’s name, it’s unclear whether they are managing anyone else’s assets. There doesn’t seem to be any information about the firm readily available, and the managing partner, Zoi Potsi from Cyprus, has been impossible for anyone to contact, as no one answers the phone. However, Berkenblit said that there are so many exceptions and exclusions that he suspects they probably did not have to register.

Shares of VIVUS, Inc. (VVUS) declined more than 2% in premarket trading this morning.