SEC reliance on private counsel ignoring AG’s Dept raises eyebrows

Monday, 28 May 2012 01:06 - - {{hitsCtrl.values.hits}}

The recent decision by the Securities and Exchange Commission (SEC) to ignore the Attorney General’s Department and retain private counsel to defend itself in a case has caused some dissatisfaction within.

Some viewed it as an irregular practice, raising serious concern.

The SEC has to retain the Attorney General as its legal counsel and in the event of opting for private counsel, needs AG’s Department clearance.

The case revolves around business tycoon Harry Jayawardena-controlled Melstacorp Ltd. filing action against the SEC over the latter’s ruling on the mandatory offer on Lanka Milk Foods Plc.

Essentially Melstacorp wants the SEC to de-couple the LMF mandatory offer and period for which the payment should be made. The SEC had ruled that Melstacorp should pay Rs. 105 per to all shareholders of LMF since 13 September 2011 and if those who may have sold at a lower price between 13 September 2011and 15 February 2012) must be compensated. If Melstacorp and parties connected to the mandatory offer are unable to abide by this rule, they should divest LMF stake immediately.

The development follows Melstacorp on 15 February this year buying an 8.856% stake or 3.5 million shares of LMF between Rs. 95.80 and Rs. 99 per share, triggering the SEC Takeovers and Mergers Code in view of connected parties holding a 50.12% stake in LMF.

However, it transpired that Melstacorp had bought two million LMF shares at Rs. 105 each on 13 September but had inadvertently missed making a mandatory offer. This was later disclosed after the 15 February 2012 purchase and a ruling was sought from the SEC.

Melstacorp had agreed for the price of Rs. 105 per share via a new mandatory offer but had insisted payment should be limited to the period of 60 days from 13 September 2011, which is the maximum possible duration of an offer if made, rather than the five-month period from 13 September 2011 to 15 February 2012 as proposed by the SEC.

The case will be taken up next week in the Court of Appeal.