Cari lcahn and the Argument for Clarity
At the end of last week, Cari Icahn had the market guessing about his intentions toward ownership of Herbal-ife Ltd. shares. The latest surprising twist in a saga that has been full of them came when The Wall Street Journal reported he was ex-ploring a sale of his stake.

When the stock fell by as much as 7.7% Friday, Mr.

Icann took advantage of that confusion to substantially increase his holdings. The Securities and Ex-change

Commission has rules requir-ing shareholders who, like Mr. Icahn, own more than 5% of a company, to be transparent about their plans. Why didnt those rules appear to work in this case and should Mr. Icahn have given more disclosure before he traded?

Herbalife and Mr. Icahn have been embroiled in a multiyear struggle with Bill Ackman over whether Herb-alifes business model is le-git. Last month, Herbalife reached a settlement with the Federal Trade Commission that forces the nutri-tional-products company to change some of its business practices. It was a partial vindication for Mr. Ackman, who alleges the company is a pyramid scheme. Herbalife has said its business model is sound and that it can move forward successfully now.

At the time of the settlement, the company amended its agreement with Mr. Icahn to increase the cap on his ownership to just under 35% from 25%. Since Mr. Icahn then owned around 18%, that seemed fair warning that he might be buying more shares. But on Friday the Journal reported that Mr. Icahn had discussed selling his Herbalife stake to a group including Mr. Ackman. Later that day. Mr. Ackmanconfirmed on CNBC that he had been contacted about putting together such a deal. As the share -price plunged on the news, Mr/ Icahn qui-etly made his purchases, which took his stake above 20% and which he confirmed in a regulatory filing late Friday. Mr. Icahn said in a statement included in the regulatory filing that he had never given a brokerage firm an "order" to sell his Herbalife shares.

But in my view, the exis-tence of an order isnt the relevant test and there are good arguments that disclosure of Mr. Icahns consideration of selling his stake and his later plan to buy should have been made sooner and the market apprised of his plans as they developed.

Under a 1968 law, the SEC requires a shareholder who acquires more than 5% of a public company to Rie what is known as a Schedule 13D within 10 days of crossing the threshold. Included in such a filing must be disclosure of any "plans or proposals" that relate to, among other things, disposing of or acquiring more shares.

When material changesoccur to information in the Schedule 13D, the shareholder is required to "promptly" file an amendment. The word promptly is not defined and can depend on the circumstances.

Mr. Icahn filed his Schedule 13D in 2013 and through Friday had made eight amendments to it. The initial filing contained typical boil-erplate language indicating he may buy more shares or sell them. That disclosure is restated in slightly different words in Mr. Icahns amendment in July after the FTC settlement and in Fridays amendment. He still says he may buy shares but these filings say he reserves the right to sell, making a sale seem less likely, in my view.

But how long do the boil-erplate disclosures keep him from having to make further disclosures as he discusses new purchases or sales? The SEC has said "generic disclosure that indicates the beneficial owner is reserving the right to" buy or sell shares "must be amended when a plan with respect to a dis-closable matter has been formulated." Indeed, in 2008 the SEC brought an enforcement action against Kirk Kerkorians Tracinda Corp. in connection with its sale of blocks of General Motors stock, which relied on the generic disclosure despite having resulted from clearly formulated plans.

Whether Mr. Icahn should have been more transparent, at least as to his interest in possibly selling his stake, will of course depend on the facts surrounding his plans and thinking, which are not entirely clear. A spokesman for the billionaire investor said "We did not have any plans or proposals requiring our Herbalife Schedule 13D to be amended and we certainly do not believe the law requires us to comment on market rumors."

Corporate lawyers attempt to manage 13D-disclo-sure obligations by suggesting that clients try to avoidformulating "plans or proposals" until a deal is ready to be done. What actually happened here is a bit of a mystery, but based on what we know, if Mr. lcahn were to pursue a share sale in the future, he should at least be required to disclose that as soon as he is working on a proposal to do so.

Mr. Barusch is a retired MScA lawyer who writes about deal making for The Wall Street Joumal