Bill Ackman welcomes a Securities and Exchange investigation into Pershing Square Capital Management LP and its involvement with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) in the hostile takeover bid of Allergan, Inc. (NYSE:AGN).

Bill Ackman Pershing Square Allergan

Ackmanstands by his action

Ackman says there was nothing wrong with the tactics and stands by his actions.

“There is nothing illegal, unethical, or improper in taking a toehold position before a merger is proposed, even if it is not wanted by the target’s management,” a Pershing statement said, quoted on Bloomberg.  “We welcome the SEC’s review of the facts.”

Not only does he think the issue is legal, Ackman accuses Allergan, Inc. (NYSE:AGN) raising the issue in a recent lawsuit “desperate attempt to delay or avoid” a shareholder meeting to vote on the Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX)’s acquisition of Allergan.

Thursday, the Wall Street Journal reported the Securities and Exchange Commission is involved in a probe to determine if the deal broke insider trading laws.

As previously reported in ValueWalk, the SEC had let the questionable nature of Ackman’s involvement in the deal known in Congressional testimony in July. When given a hypothetical example that resembled Ackman’s involvement in the Allergan deal, SEC Official Keith Higgins outlined what is likely the key legal issue, a violation of SEC’s rule 14E3.

“When a bidder has taken substantial steps to commence a tender offer anyone who gets material non-public information from that bidder who trades on it is liable for insider trading irrespective of any breach of a duty,” Higgins said during Congressional testimony at the time.

When the deal was first announced, ValueWalk indicated insider trading could be an issue in the deal. As reported in April, when the deal was first announced Robert Khuzami, the former director of SEC enforcement and now a legal gun for Pershing Square, made a bold statement:

“Anyone at SEC who has problems with this (Ackman’s legal insider trading in Allergan derivatives), talk to me,” he challenged.

The SEC may have some problems with the issue.

Khuzami appears to be silent on the issue

For his part, Khuzami appears to now be silent on the issue, as his quick to the gun move to categorically declare a controversial trading maneuver legal before the SEC staff had time to review the unusual situation was said to have rankled some regulators.

As reported in ValueWalk, the civil investigation is reportedly at an early stage and might not result in any action against Bill Ackman or his firm, Pershing Square Capital Management. Earlier this year, Ackman’s firm purchased a 9.7% stake in Allergan, Inc. (NYSE:AGN) “with the understanding that Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) would seek to buy the company,” The Journal reported. While it is unusual for an activist investor to team up with a company that plans to make a buyout bid for another company, but both Valeant and Ackman have said their partnership has remained within the boundaries of the law.

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) and Ackman are on the same page, as Valeant issued a statement today saying that it is “confident that the trading was completely lawful.”

The drug maker made a bid for Allergan earlier this year, but Allergan, Inc. (NYSE:AGN) rejected all three of the offers that have been made.  Ackman has charged that Allergan management failed in their fiduciary duty by not properly examining the bids.

In other news this morning, which is slightly related Dan  McCrum of the Financial Times reports

Buried in page 27 of Valeant’s recent quarterly regulatory filing was some potentially significant news: the pharmaceutical company, currently pursuing a $53bn hostile takeover of Allergan, is under investigation by the Internal Revenue Service.

According to people familiar with the situation a number of individuals, including former senior executives, have raised concerns with the IRS, which has been holding an inquiry into the company for the last two years. The probe by the Large Business and International division of the agency has included an examination of Valeant’s tax arrangements following the 2010 merger with Canadian Biovail, a so-called “inversion” deal that enabled the former US company to dramatically reduce its tax bill.

In unrelated news, as VW first reported last night, Ackman has officially filed suit against the US Government over Fannie Mae and Freddie Mac