Mr. Ackman thinks the law should change — but in the other direction. In an interview, he proposed that investors should be allowed to buy up to 15 percent of a company before having to disclose it. "Control doesn't change at 5 percent or 10 percent or 15 percent; 15 percent is a meaningful stake. But if the rest of the shareholders don't agree with you, you're toast."
He said that activists must be able to acquire big stakes secretly or it becomes too costly to mount campaigns against management. "Shareholder activism is extremely time-consuming, expensive and a drain on an investment firm's resources," he said. More important, he argued, "it is a good thing for a large shareholder to be looking out for the other shareholders. A world in which every shareholder is forced to be passive is Japan."
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Whatever the case, activists — and other investors — have long sought to keep their investments secret until just the right moment, worried that a leak would cause the target stock to jump, making their investment too expensive.
Not only have some investors used the 10-day rule to buy up shares on the sly, but they also have also sought special dispensation from the S.E.C. to make investments confidentially, without any disclosure for long periods.
For example, David Einhorn argued for confidential treatment of his investment in Micron Technology. "Mirror trading by 'copycats' could lead to unwarranted volatility and inflated prices in the security," a representative for Mr. Einhorn's firm, Greenlight Capital, argued in a Nov. 14, 2013, letter, which my colleague, Matthew Goldstein, wrote about this month.
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Warren E. Buffett, Carl C. Icahn, Mr. Ackman have all taken advantage of the confidentiality rule.
But in a world of activist investing and high-speed trading, everyday investors need more timely information, not less.
No less an expert than Leo E. Strine Jr., the former chief judge of the Delaware Court of Chancery, the nation's top business court, agrees that some reform is needed. He made a compelling argument in a paper that, at minimum, "filers have to disclose completely their ownership interests in instruments of any kind tied to the value of the company's stock."
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He said, "the voting electorate should have up-to-date, complete information about the economic interests of a hedge fund holding a large block of a corporation's shares and proposing that the corporation make business strategy changes it is suggesting."
Specifically, Judge Strine added: "Precisely how 'long' the fund's investment in the company is and in what manner the hedge fund is long is relevant information for the electorate to consider in evaluating the hedge fund's interest. So is how 'long' the activist is committed to owning its shares."
Activists often fight management, seeking more transparency and disclosure. You'd think they'd take their own advice.
—By Andrew Ross Sorkin, The New York Times. Andrew Ross Sorkin is also co-anchor of CNBC's "Squawk Box."