The Securities and Exchange Commission is investigating Edward J. DeBartolo Corp. and its top officials, the nation's leading shopping center developers, to determine whether they violated federal securities laws by secretly aiding hostile takeover bids and other stock purchases by raider Paul A. Bilzerian.
DeBartolo and Bilzerian are two of the most prominent deal makers in American finance. In addition to shopping centers and other real estate, DeBartolo owns the San Francisco Forty-Niners professional football team and the Pittsburgh Penguins professional hockey team. Bilzerian has made millions of dollars in his raids on corporations even when failing to capture his target.
According to SEC subpoenas and other documents, the agency is examining whether Edward J. DeBartolo Sr. helped Bilzerian accumulate large blocks of stock in takeover targets without alerting the investment community and driving the price up.
One question, according to the documents, is whether DeBartolo improperly concealed millions of dollars in loans to Bilzerian, to his relatives and to DeBartolo Corp. employees to acquire the stock of Hammermill Paper and Cluett Peabody & Co. to support raids on the companies.
The SEC said it also is trying to determine whether DeBartolo and Bilzerian "may have entered into an undisclosed profit sharing arrangement regarding Cluett securities."
"The matter is in the hands of our lawyers, and we have been cooperating and will continue to cooperate with the investigation," DeBartolo said through his spokesman, Stephen Flood, a partner with the law firm of Willkie Farr & Gallagher. A spokesman for Bilzerian declined to comment.
In response to questions about the DeBartolo investigation, SEC enforcement chief Gary Lynch said the court papers speak for themselves and he would have no other comment.
The investigation can be traced to the November, 1986 fall of imprisoned former stock speculator Ivan F. Boesky, when the SEC began a wide-ranging probe of a practice known as "stock parking."
Stock parking typically involves an agreement between two parties in which one party agrees to buy and hold stock for the other, whose identity can thus be concealed. The arrangements often include unwritten agreements to guarantee the purchaser against losses, to reimburse expenses and possibly to share stock trading profits.
Lynch has said that stock parking and other techniques aimed at rigging corporate takeovers are high-priority projects for his investigators. The consequences of such violations, including the improper seizing of control of multibillion-dollar corporations, can be even more damaging to securities markets and to the nation than illegal, insider trading, Lynch has said.
In connection with corporate takeovers, stock parking schemes can be used to buy shares at bargain prices. Federal securities laws require investors to disclose their holdings in a takeover target within 10 days of the time they exceed 5% of the target's shares.
Disclosure of a stake of 5% or more often sends a stock price up, as speculation builds concerning a possible premium-priced takeover bid. By entering into a stock parking scheme, an investor and his share-buying partners can prevent such a price run-up as they continue to purchase stock.
However, securities laws require disclosure not only of the 5% holdings of an individual investor but also of others with whom the investor has teamed up.