Posted in Finance, Accounting and Economics Terms, Total Reads: 243
Definition: Parking Violation
Parking violation refers to the practice on the part of an acquiring company when it conceals the ownership of the target or acquired company by illegally holding stock under a third party. The acquiring firm tries to conceal its identity by parking or holding or financing stocks by a third party holder.
In such a situation, the third party holds or finances the stocks with the sole purpose of concealing the identity of the acquiring firm as opposed to the legal situation in which the third party is the third party can be rightfully assigned stocks. This may result in misrepresentation such that the target company that is being traded is unaware that a high percentage of its stock would actually be owned by a single owner as a result of the illegal aid by the third party.
As per the Williams Act, a bidder in the U.S. is mandated by the SEC to file relevant forms with the SEC upon initiation of a tender offer during an acquisition. The bidding company is required to disclose – 1) the material terms of the offer being made; 2) the identity and background of the bidding company and 3) the bidding company’s history with the target company. The Act also mandates the bidding company to file Section 13(d) of the Williams Act with the SEC within 10 days of acquiring 5% or more of the target company’s shares. During a parking violation, the bidding company attempts to hide its extent of ownership in the target company in order to avoid the 5% disclosure requirement specified in Section 13(d) of the William’s Act. The bidding company parks the purchased securities with an accomplice third party.