Perhaps G Asset Management's Michael Glickstein won't be criminally charged for entering into short-dated call options contracts for Barnes & Noble shares and then offering up what regulators characterized as a bogus controlling bid that yielded a quick payout when the stock skyrocketed and he cashed out. But the 34-year old former fund manger with a stellar resume that includes time at Goldman Sachs and once-mighty hedge fund Pequot Capital, in addition to an MBA from New York University's Stern School of Business, appears to have destroyed his promising investing career for the meager $168,000 payout he generated from the suspect Barnes & Noble bid.
On Thursday, the Securities and Exchange Commission charged Glickstein with fraud over his February 2014 bid to buy 51% of Barnes & Noble for $22 a share -- a deal that would have cost roughly $632 million - but that the SEC said was misleading given Glickstein had no ability to finance the offer. At the time, Glickstein was managing only a few million, the SEC said in its complaint.
Worse yet, before going public with his premium priced Barnes & Noble bid, Glickstein bought thousands of short dated and out-of-the money call options contracts that would only pay off if the stock quickly shot up in value. When Barnes & Noble did just that on Glickstein disclosure of an offer, he quickly exercised the options contracts.
The SEC said on Thursday it settled its fraud charges with Glickstein after he agreed to return $175,000 in ill-gotten gains and interest, and accept a five year bar from the securities industry. The SEC is allowing Glickstein to settle without admitting or denying wrongdoing, and another positive for the thirty-something bookstore activist is that there appears to be no parallel criminal action. Media representatives for the SEC and Southern District of New York declined to comment beyond public statements.
When reached by FORBES Glickstein was defiant. “While we view the settlement as our best option and we are not able to admit or deny wrongdoing per the settlement agreement, we would like to comment that the SEC and New York AG are human trash and have committed financial crimes against me and my company.” Glickstein added, “the settlement was our best option because the New York AG threatened me with immediate arrest if we didn’t settle.”
He then characterized the investigation as a "witch hunt" and launched added invective. When pressed about his options trades, Glickstein said his attorneys, which he didn't name, cleared the transactions. In a series of voice mails around 4 a.m. ET, Glickstein refuted the notion that his bid was "bogus," arguing he had contacted potential capital partners.
According to Glickstein's LinkedIn profile, after graduating Skidmore College summa cum laude he began as a technology, telecom and bank stock analyst at Friedman Billings Ramsey in 2003 before moving to Goldman Sachs's industrials group a year later. After two years with Goldman, he joined long-short hedge fund Marcer Partners and then moved onto Pequot Capital, a Connecticut hedge fund that once managed $15 billion.
Glickstein then enrolled in NYU's Stern School of Business where he became president of the Michael Price Student Investment Fund, a $2 million piece of the school's endowment. With a strong resume, Glickstein then decided to launch his own investment firm, G Asset Management in 2009.
In early 2011, it appears Glickstein decided to try his hand at activist investing, targeting both Barnes & Noble and Bob Evans Farms. With Bob Evans, Glickstein called for added capital returns to shareholders and financial engineering such as unlocking the company's real estate assets. Years later Sandell Asset Management, a well-respected activist fund, disclosed a large stake in the restaurant and last year won four seats on the company's board of directors.
But Glickstein really got publicity for his involvement with Barnes & Noble, a troubled stock many believed could be fixed through a separation of its disparate businesses.
After taking a stake in Barnes & Noble in early 2011, G Asset Management contacted the company's board of directors with a plan to split the bookseller into three pieces; a bookstore unit, a college unit and its Nook business. The firm also offered up a bid for 51% in the bookseller that year, but was rebuffed by the company's management. In February 2012, G Asset Management then filed a 13D with the SEC stating it beneficially owned more than 5% of Barnes & Noble's shares; a holding that included 41,575 shares of common stock and nearly 3 million call options contracts.
In March, G Asset Management offered $460 million for 51% of Barnes & Noble's college bookstore division, claiming it could raise money to finance the purchase which would come with $410 million in debt, another M&A effort that Barnes & Noble rejected. In March 2013, as Barnes & Noble shares continued to languish, G Asset Management then offered $20 a share for a 51% piece in the entire business, but again the firm could only offer thin commitments for financing.
Prior to making the bid, G Asset Management held just 50,000 Barnes & Noble shares. However, it entered into 4,000 short-dated call options contracts that expired the following day and then Glickstein contacted Bloomberg to publicize his offer. Bloomberg doesn't appear to have taken the bait according to the SEC's complaint. A week later, Barnes & Noble again rebuffed Glickstein.
Clearly, Glickstein believed Barnes & Noble was bungling its assets and could unlock value through more decisive action with its various business lines, a complaint shared by many investors. Ultimately, Barnes & Noble did spin its college bookstore unit, it bought back Microsoft's stake in Nook, and it inked a hardware partnership with Samsung.
But it's last year when Glickstein appears to have crossed the line -- or at least generated the market reaction -- to put him on the wrong side of the law.
According to SEC's complaint, at 9:31 p.m.on February 20, 2014, Glickstein sent an email to Barnes & Noble offering $22 a share for 51% of the company, or alternatively $5 a share for a similar stake in its nook business. But the SEC says in its complaint Glickstein had "no reasonable basis" to believe he could finance either bid. At the time, Glickstein had acquired 30,050 short term call options with strike prices ranging from $15 to $22 apiece that were due to expire on Feb. 22 and March 22.
In the hours and days prior to then issuing a press release on Feb. 21 publicizing the offer, the SEC alleges Glickstein made the following purchases:
- 1,000 shares at approximately $16.79 per share.
- 146 February 22, 2014 call options with a strike price of $16 per share
- 200 February 22, 2014 call options with a strike price of $17 per share
- 2,531 February 22, 2014 call options with a strike price of $18 per share
- 2,000 February 22, 2014 call options with a strike price of $19 per share
- 1,176 February 22, 2014 call options with a strike price of $20 per share
- 1,866 February 22, 2014 call options with a strike price of $21 per share
At 1:20 P.M. on Feb. 21, GAM issued its press release regarding its dual buyout offers for Barnes & Noble, causing shares to skyrocket over 10% from $17.05 to $18.99. Ultimately the stock closed that day's trading higher roughly 5% after the business press questioned Glickstein's ability to finance a bid. However, after the market close, GAM automatically exercized 184,000 in-the-money call options contracts. Because GAM had little margin in its futures and options accounts, the firm quickly unloaded its Barnes & Noble stock, generating a $168,000 gain.
Days later Glickstein took to Fox Business Network to discuss his bid and communications with Barnes & Noble in a media appearance the SEC characterized as misleading. Glickstein says his trading account at Fidelity was frozen shortly after the FBN appearance.
Those trades will now haunt Glickstein, who has to return all of his profits and face a half-decade ban from the investment industry.
His troubles are a cautionary tale amid the rise of activist investing, where investors often seek to use letters to management and yet-to-be finalized bids on company assets to hasten change. In Glickstein's case actions speak louder than words -- many likely agreed with his analysis of Barnes & Noble -- but buying short term options contracts and then trying to move markets to have the positions pay out is a step too far.
Calling the SEC and New York AG "human trash" isn't going to help either.
