By GlobalSlant

Editor’s note: This is from 2015 but is relevant today especially in light of recent news regarding Carl Icahn

“Activist Investors”, the relatively new classification for corporate agitators, want you to believe that their intellectual tactics/strategies improve both corporate governance and shareholder returns.

That may be true but they also seem to be involved in another, less savory, tactic…that is inflating their claims of company “ownership” with extremely large, and extra-ordinarily short dated/price sensitive, derivatives positions.


Photo by insider_monkey

The derivatives positions are, typically, not converted to common shares until AFTER the MARKET MOVING, COMPULSORY SEC 13D Disclosure Filings…usually/already deep “in the money”.

Nothing like a “free ride” on the back of the ignorant SEC.  Is it legal? Maybe/Maybe Not.

But it certainly does not “smell” right…as this exclusive breed of both newer and established “Activists”, unfortunately, perpetuate the idea that Wall St. is still = a “Den of Thieves”.

That SEC chief Mary Jo White, and her substantial staff of attorneys, have not taken notice of this loop-holed tactic also point to another glaring weakness = the federal government’s “asleep at the wheel” regulators.


Two recently disclosed positions by “Activist” powerhouses JANA Partners and Carl Icahn will serve to illustrate this phenomenon. Of course, they are not the only firms/personas engaged in these controversial positioning techniques.

Any discussion of dicey, “Activist” trading tactics must also include Pershing Square’s Bill Ackman…he who built a very large stake in the “old” Allergan/AGN knowing, full well, that Valeant/VRX would be bidding to acquire the company. Somehow, in the SEC’s complicated and twisted legal morass, that maneuver was ironically considered both “kosher” and legal.

However this particular “post” will focus on JANA Partners’ place-holding in ConAgra Foods/CAG and Icahn’s footprint in Freeport McMoRan/FCX.


First off…a little background on JANA/Icahn and their disclosure responsibilities to the SEC.

As of June 30, 2015 [13F Filings] JANA Partners, managed by Barry Rosenstein, managed a portfolio valued at $16.8B with Icahn’s equaling $31.2B. Further, the investment track records, for both, are very good…especially since the market trough in 2009…but even prior to that.

In addition to managing capital both JANA/Icahn must also tend to an array of mandated administrative tasks including public filing disclosures with the SEC. The quarterly Form 13F, in particular, is of keen interest to many industry observers.

This filing specifically reveals a fund’s portfolio composition [as of calendar quarter end]. For all to see… newly acquired positions/liquidated prior positions/existing positions trimmed or added to…punctuated by their dollar value. A true window into the portfolio…but it may be time lagged, to a maximum, by 6 Weeks/45 days…and, typically, not all AUM are subject to the 13F filing. However, in the cases of JANA and Icahn, the majority of the firms’ AUM are reflected in their respective filings.

Moreover…if any investor [including “Activist’s”] acquires 5% of the common equity outstanding [directly or indirectly], of a publicly traded company, it is required [at a minimum] to file an SEC Schedule 13D within ten days of crossing the 5% threshold.

It is also important to note that a firm can request an exemption from disclosure if a position is currently being acquired…as it could interrupt their accumulation pattern and price tolerance[s].

This “Schedule”, once filed with the SEC, immediately becomes publicly accessible. JANA’s 13D was disclosed on June 18, 2015 [5% threshold met on June 8] while Icahn revealed his 13D on August 27, 2015 [5% threshold met on August 17]. Both filings occurred after the close of regular trading hours and adhered to the SEC’s dubious “beneficial ownership” definitions.



The SEC, supposedly in the business of enforcing disclosure, seems to be running afoul of its own mandate. They’ve technically refined Webster’s “Ownership” as “Beneficial Ownership”…certainly loosening/stretching the intuitive definition as follows:

Beneficial Ownership =

Direct/Stock Ownership [D/SO]

In-Direct/Derivative Ownership [I/DO]

Despite being combined in the SEC’s “Beneficial Ownership” definition these two “ownership” sub-categories are quite different. Specifically, the typical rights accorded to D/SO i.e. voting and dividends are NOT accorded to I/DO.

Derivatives simply offer a trader/investor the RIGHT to future ownership/liquidation with a “hard” set of conditions/choices
[buy/sell, strike price & exercise/maturity dates]. Until/If that RIGHT is exercised the trader/investor actually does NOT own/is NOT “short” the underlying asset.

So the 13D’s [filed by Icahn’s and JANA’s legal clans] classifying “Ownership” stakes as 88M/31M shares of FCX/CAG [suggesting approximate capital commitments of $1.1B & $1B] respectively is, in reality, such a great distance from the truth that it is almost comical [see below].



Icahn/FCX [at time of filing]

88M Shares Beneficially Owned
8.46% of FCX Common Shares Outstanding

52.011M = 5% Ownership Threshold [13D]

3.254M Shares = Directly Owned = Stock

80.402M Shares = In-Directly Owned = Forward Contracts
12M Shares = In-Directly Short = Put Options [implied long position]

4.344M Shares = *Unknown [Direct vs. Indirect?]*

JANA/CAG [at time of filing]

30.863M Shares Beneficially Owned
7.20% of CAG Common Shares Outstanding

21.352M = 5% Ownership Threshold [13D]

6.732M Shares = Directly Owned = Stock

19.032M Shares = Indirectly Owned = Call Options

5.099M Shares = *Unknown [Direct vs. In-Direct?]*

*13D filings require disclosure of executed positions within the prior 60 days. Any “positioning” prior = no obligation to disclose.

For JANA, since the 13F [dated 3.31.15], did not reveal any prior position in CAG [unless they were exempted…as discussed above] it is likely the “Unknown” share quantities of 5.099M shares were “acquired” between April 1 and April 19.

Icahn’s “Unknown” share quantities are a little more complicated to track. There was no FCX position listed in the 13F dated 6.30.15 [unless they were exempted…as discussed above]. And despite the claim, in the 13D, of 80.402M shares owned through “Forward Contracts” [a very lightly regulated/regarded derivative] it was only possible to track 57.183M of those shares. Anyway I suppose if he says he owns the derivatives…then he probably does.

Similar to the forward contracts it was only possible to track 3.254M of those shares “Directly Owned”…though the document indicates a position of 7.596M shares. Again …I suppose if he says he owns the shares…then he probably does.*

Consider please, the most important point of this mathematical detail…that Icahn’s initial [direct ownership position] was, possibly, just 3.254M shares [vs. the 88M ownership stake characterized in the 13D filing].

No matter…even if the “Unknown” classification of shares [from above] were entirely included as “Directly Owned” [as the filing “softly” indicates]…it still would equal just 21.38% of the 88M shares claimed as ownership.

As for JANA…their direct ownership position was, possibly, just 6.732M shares [vs. the claimed 30.863M shares characterized in the 13D filing].

And as with Icahn…even if the “Unknown” classification of shares [from above] were entirely included as “Directly Owned”…it would equate to just 38.33% of the 30.863M shares claimed as ownership. .

Another more direct way to assess this = without the large derivatives positions…the “Market Moving” 5% ownership threshold, in either case, would not have been met. Plainly …not even close. [more on this point later].


A pundit may indicate…“You may not like the SEC’s beneficial ownership definitions but those ARE the current rules. Your “beef” is with the SEC…not Icahn/JANA. They’ve really done nothing wrong”. I suppose that is possible…while also noting that the current SEC “ownership” definition is exceptionally misleading and distorts the “spirit” of true ownership.


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