Ackman: No Laws Broken in Allergan Buy

Billionaire activist investor William Ackman said today that the way he accumulated his stake in Botox-maker Allergan (NYSE:AGN) was above the board and did not violate insider-trading laws.

Speaking at an in-person meeting for Allergan and Valeant (NYSE:VRX) shareholders earlier today, Ackman, who runs the Pershing Square hedge fund, explained his latest activist move, amassing a 9.7% stake in Allergan. Ackman’s activist hedge fund has partnered with Valeant bidding to buy Allergan for about $47.5 billion in a cash-and-stock deal.

But the deal isn’t without some controversy; Pershing Square began buying Allergan stock on February 25 and then in March switched to over-the-counter call options to accumulate the rest of its stake.

The moves by Ackman came after conversations with officials from Valeant about a possible joint bid that wasn’t made public until the deal was announced.

With that, Ackman’s hedge fund quietly reaped a hefty profit as shares of Allergan rallied sharply – around 22% — in the days just before the bid were disclosed, none of which Ackman tells FOX Business violates insider-trading rules.

“The way the insider-trading rules work is you can’t trade on material non-public information if you are breaching a duty of confidentiality or some other duty you have to the person you received the information from,” he said when asked about the matter. “What we are doing here is we’re partnering to assist Valeant in acquiring Allergan. Mike (Pearson, CEO of Valeant) shared with me their interest in Allergan -- there was no breach of a duty. In fact, Mike, as the CEO of Valeant, said it was in the best interest of Valeant to share with me their interest in Allergan for the purpose of working on the transaction.”

Ackman told FOX Business the information he received from Pearson was “clearly material non-public information.” But he added that the “law says that as long as they willingly provided that information as opposed to bugging his office…it’s not a breach of insider-trading laws.”

James D. Cox, corporate and securities law professor at Duke University, says Ackman may not have violated insider-trading laws, but that the way the stake was amassed by Ackman and Valeant could lead to changes in disclosure rules.

“To the extent the SEC believes there has been confusion on what are the players’ motivations, I think there would be a high likelihood to act to amend disclosure guidelines when you have this kind of confusion in the marketplace,” Cox said. “I think the SEC needs to jump in early. There is a very good chance there has been some very profound violations of what they are required to disclose at this point.”