represented a transaction-count rise of 11.96 percent in
comparison with the first half of 2005 and a 58.17
percent increase in the total dollar amount raised in
the same period last year, according to the firm. “If
this pace continues, 2006 should set new records for
both number of transactions and total dollars raised in
the U.S. PIPE market,” said Robert Kyle, executive vice
president of Sagient Research.
PIPEs are usually a
preferred financing vehicle for struggling companies
that don’t have positive cash flow. Hedge funds and
other aggressive investors have been the traditional
buyers of the privately-placed paper, which is generally
priced at a significant discount from the prevailing
public share price.
The vehicle, however, has generated a fair amount of
controversy and regulatory scrutiny. In May, for
instance, the Securities and Exchange Commission settled
civil charges involving PIPEs against hedge fund adviser
Deephaven Capital Management, LLC and its former
portfolio manager Bruce Lieberman.
The commission alleged that they engaged in insider
trading from August 2001 to March 2004 on the
information that 19 PIPE offerings were about to be
publicly announced. In each case, the company's stock
price fell on the announcement of its PIPE offering, the
The SEC accused Deephaven and Lieberman of learning
about confidential material nonpublic details about the
upcoming PIPE offerings from placement agents for the
companies and then selling the company shares short.
Deephaven agreed to disgorge $2,683,270 in unlawful
profits and pay $343,418 in prejudgment interest and a
$2,683,270 civil penalty. Lieberman agreed to pay a
$110,000 civil penalty and signed on to a commission
order barring him from associating with any investment
advisers for at least three years.
According to Sagient, the following five companies
were the largest placement agents in the PIPE market in
the first half of 2006: Rodman & Renshaw, LLC; Roth
Capital Partners, LLC; Cowen and Company, LLC; Midtown
Partners & Co., LLC; and Sanders Morris Harris, Inc.
The five largest investors in the first half were:
Nite Capital Management, LLC; Iroquois Capital, L.P.;
Highbridge International, LLC; Downsview Capital Inc.;
and Cornell Capital Partners, L.P.