Hedge Fund May Face Charges in Merger Bid

Federal regulators have notified Perry Capital, a big hedge fund, that they are preparing to bring civil charges against the firm in connection with its attempt to influence a takeover battle.

Perry, a $10-billion hedge fund run by Richard Perry, a former partner at Wall Street investment firm Goldman Sachs, received a formal notice from enforcement attorneys at the Securities and Exchange Commission that they were contemplating taking action. As is customary, the hedge fund was given an opportunity to argue that charges were unwarranted.

Perry bought major stakes in King Pharmaceuticals and Mylan Laboratories and used a complex hedging technique to eliminate any risk of losing money on its investment in Mylan. The move gave Perry the power to vote Mylan’s shares in favor of its takeover bid for King in 2004 without having any money at risk.

The proposed merger eventually fell through.

Perry confirmed in a statement provided Wednesday that it had received a so-called Wells notice from the SEC, alerting the firm that the agency intended to pursue civil action against it for alleged violation of securities laws. The development was first reported in Wednesday’s editions of the New York Times and the Wall Street Journal.

Perry said in the statement that it would refute the SEC’s allegations. “We believe that we have acted properly at all times and with the advice of counsel,” it said.

SEC spokesman John Nester declined to comment.