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SEC enforcement in the PIPE market: Actions and consequences

Ola Bengtsson, Na Dai and Clifford Henson

Journal of Banking & Finance, 2014, vol. 42, issue C, 213-231

Abstract: In 2002, the SEC launched 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: Private Investment in Public Equity (PIPE); Regulation; The SEC (search for similar items in EconPapers)
JEL-codes: G14 G18 G24 K12 K22 K42 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.jbankfin.2014.02.002

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