USA: A district court judge in New York has ruled that two hedge funds seeking greater influence over CSX policy 'deliberately violated' US securities law. The court denied the railroad's request for an injunction to prevent the funds from voting their shares at the CSX annual meeting on June 25, although it also rejected all of the funds' counterclaims.
The ruling came in a suit filed by CSX against The Children's Investment Fund Management and 3G Capital Partners seeking to prevent them proposing five candidates for election to the company's board (RG 7.08 p359). In a 115-page opinion, Judge Lewis Kaplan said TCI and 3G evaded legally-required disclosure obligations and 'testified falsely in many respects' while purchasing large blocks of shares; the funds now own 8·7% of CSX and control a further 3·1% through derivative swaps.
The judgment said TCI had 'sought to control CSX for over a year. As obstacles to control surfaced, they adapted their strategy for achieving control, making disclosures only when convenient to their strategy'. CSX immediately issued a letter urging shareholders 'to consider carefully these violations and the pattern of deceptive conduct from the TCI Group - including false testimony under oath - as you evaluate whether the TCI Group nominees are fit to serve on the board of a US public company.'
Nevertheless, on June 18 proxy advice company Institutional Shareholder Services recommended that shareholders should vote for four of the five candidates proposed by the two funds. CSX dismissed the recommendation as 'uninformed'.