{ "docId": "019dd923-622c-750b-8b9d-39f11e449ba8", "docSlug": "2440e3a9300a", "documentTitle": "Allied Capital (ALD)", "authorId": "04_Greenlight_Capital", "authorName": "David Einhorn", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "activist_investor", "sourceTypeLabel": "Activist investor", "presentationDate": "2002-06-17 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 9, "pageCount": 27, "prevPage": 8, "nextPage": 10, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 0, "notes": "The slide uses a dialogue format to expose a contradiction between Allied's claims and SEC regulatory stance.", "elementsJson": [ "paragraph", "quote_block", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b9d-39f11e449ba8/9", "deckHref": "/decks/019dd923-622c-750b-8b9d-39f11e449ba8", "deckJsonHref": "/decks/019dd923-622c-750b-8b9d-39f11e449ba8.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b9d-39f11e449ba8#slide-9", "components": [ { "bbox": null, "kind": "callout", "text": "Without providing detailed analysis of each of these points, it seems clear that Allied has adopted policies that are inconsistent with SEC policy.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-ee3c-76df-9652-cc7cf1cb3d0d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.7, "x": 0.15, "y": 0.36 }, "kind": "paragraph", "text": "Without providing detailed analysis of each of these points, it seems clear that Allied has adopted policies that are inconsistent with SEC policy. If so, Allied’s statements of earnings and NAV are inconsistent with statutory requirements.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5b97dae4-d502-48b5-89fa-63fd11e5ed19", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.7, "x": 0.15, "y": 0.27 }, "kind": "paragraph", "text": "Here, Allied leaves out the next sentence which reads, “However, while it is clear that the current sale principle recognizes a reasonable time frame in which to arrange sales it does not ignore the fact that a security may suffer from a thin market or other unenviable variables.”", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "97f14964-e23e-498d-87f1-f9b3f198e986", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.7, "x": 0.15, "y": 0.11 }, "kind": "paragraph", "text": "The SEC has recently confirmed, with little further guidance, that in fact fair value is not intended to be a ‘fire sale’ price. In In Re Parnassus Investments, an administrative law judge found that the fund had violated the requirement that the fund’s board of directors fair value restricted securities in good faith. Respondent had argued that the ‘current sale’ requirement was tantamount to a ‘fire sale.’ The judge responded that ‘[r]espondents are correct in that fire sale pricing was never the intention of the Commission.’", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d01f4045-8fbc-4904-8bf0-65239c248f6e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.7, "x": 0.15, "y": 0.43 }, "kind": "paragraph", "text": "Greenlight spoke with Mr. Scheidt at the SEC about Allied’s claims that BDC’s should be treated differently than other investment companies. While Mr. Scheidt did not comment about Allied specifically, he did address the argument that BDC’s should have special treatment. Greenlight asked for and received explicit permission from Mr. Scheidt to quote him and the following is an excerpt from our conversation:", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f422764c-2819-4ca6-a354-d8bc258a3f29", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.2, "w": 0.7, "x": 0.15, "y": 0.71 }, "kind": "quote", "text": "Mr. Scheidt: Disagree. We said in either or both of the two letters that James [Lin of Greenlight] mentioned yesterday that I wrote that the guidance that we were providing applied to all investment companies, open end and closed end. And here’s the reason. The BDC is right to one extent. Since open end funds do have to redeem and since they’re continuously offered, it is very important for those funds to accurately calculate their NAVs. It’s essential to their operations. Closed end funds and BDCs, though, publish their NAVs if they’re trading on an exchange, the exchange usually requires them to do that at least weekly or monthly, and they are required to provide financial statements that set forth their NAV and all of these", "attrs": null, "subkind": "testimonial", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "145f0924-23da-40de-97be-ea16a09678bf", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.7, "x": 0.15, "y": 0.52 }, "kind": "quote", "text": "Mr. Einhorn: There’s a BDC out there in the public market that is making the general argument that the general standards for the 1940 Act that the SEC has given out are mostly for mutual funds closed and open ended that have to value their assets on an NAV basis on a daily basis to let investors in and out. And since they are a business development company with a portfolio of assets that they could hold for five to ten years, they really are much more like a small business lender, and as a result, they should be held to sort of the SBA standards for accounting which is instead of a current fair value test, more of an impairment test as investments go bad, and I guess we’re sort of wondering what you think of that analysis.", "attrs": null, "subkind": "testimonial", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "69a71e74-7f8c-4237-ac56-baf652e5c5e0", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "“The SEC has recently confirmed, with little further guidance, that in fact fair value is not intended to be a ‘fire sale’ price. In In Re Parnassus Investments, an administrative law judge found that the fund had violated the requirement that the fund’s board of directors fair value restricted securities in good faith. Respondent had argued that the ‘current sale’ requirement was tantamount to a ‘fire sale.’ The judge responded that ‘[r]espondents are correct in that fire sale pricing was never the intention of the Commission.” — SEC/In Re Parnassus Investments", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd952-ee3c-76df-9652-d1b5b280f11f", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.1, "x": 0.15, "y": 0.92 }, "kind": "source-note", "text": "12 Ibid, p.6.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f4d80d00-f512-4b17-b753-3991b261f95a", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "expose_contradiction", "slug": null, "matchId": "6b26ac24-ef52-412b-964a-bc8707e297d7", "evidence": "The slide explicitly contrasts Allied's claims with SEC guidance and direct quotes from an SEC official.", "confidence": 1 } ], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }