SEC: Takeover Bid of Fortune 500 Company was a Sham
The Securities and Exchange Commission today charged Melville ten Cate, a U.S. citizen residing abroad, with fraud stemming from his allegedly phony offer to purchase Textron – a large U.S.-listed aircraft, defense, and industrial company.
The SEC’s complaint, filed in federal district court in Manhattan, alleges that on November 9, 2020, ten Cate and Xcalibur Aerospace, Ltd., a now-defunct private company ten Cate controlled, placed an advertisement in The New York Times announcing a proposed purchase of all existing stock of Textron for $60.50 a share, a 56 percent premium over the stock’s previous closing price. As alleged, the advertisement led to a spike in Textron trading and a subsequent trading halt. The SEC has charged ten Cate with violating the antifraud provisions of the federal securities laws.
According to the complaint, the announcement was false and misleading because ten Cate and Xcalibur lacked the financial resources to complete the transaction, which would have required more than $14 billion. The tender offer announcement allegedly described Xcalibur’s corporate parent as a ‘diversified global investment company,’ when it had no operations or assets and had been deactivated for failure to pay taxes. The complaint alleges that the announcement failed to disclose that ten Cate and entities he controlled had been the subject of multiple bankruptcy and default judgments and that Textron had previously rejected Xcalibur’s overtures. The SEC’s investigation also allegedly confirmed that the defendant attempted to access the Commission’s online Electronic Data Gathering and Retrieval (EDGAR) system in order to complete the required process for a public filing but was thwarted by SEC officials.
“We allege that the defendant, ten Cate, pretended to run a financially viable business while leaving a trail of bad debts that included never paying for the very advertisement that announced the fictitious offer,” said Carolyn Welshhans, Associate Director of the SEC’s Division of Enforcement. “The SEC will continue to pursue those who disrupt our markets and spread materially misleading information to investors through the media or the SEC’s EDGAR system.”
The SEC is seeking permanent and conduct-based injunctions, a penalty, and an officer and director bar. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against ten Cate.
The investigation was conducted by Edward Reilly and Brian Vann and supervised by Amy Friedman and Ms. Welshhans. The litigation will be conducted by Duane Thompson and supervised by Melissa Armstrong. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and U.S. Department of Homeland Security.