Letters to Regulators: Letter to the SEC on Addressing Loopholes in Forms 13-F & 13-D Reporting

View or download a PDF of the letter here.

Chairman Gary Gensler
Securities and Exchange Commission
100 F St NE
Washington, DC 20002 

September 20, 2021 

Dear Chairman Gensler, 

We write to urge the Securities and Exchange Commission (SEC) to close critical reporting  loopholes that are being exploited by a number of hedge funds in an effort to disguise their  holdings from the public. These exceptions allow hedge funds to take outsized risks using  derivative positions that go unreported. The reporting gaps pose dangers to other shareholders  who may be unaware of a fund’s large position and leave the management of publicly traded  companies in the dark on who their shareholders are.  

In general, an investor that owns more than 5% of a company’s shares must file a Form 13-D  disclosure with the SEC within 10 days of reaching that threshold. Yet, as the sudden implosion  of family office Archegos Capital in March of this year exposed, positions built through  derivatives such as total return swaps and puts that are sold are exempt from this reporting requirement. Similarly, these derivatives positions are exempt from quarterly summary  holdings reporting on the SEC’s Form 13-F, which large institutional investors holding more than  $100 million in reportable securities must otherwise file 45 days after quarter end.  

Lack of transparency poses risks for other investors and lenders and leaves regulators in the  dark 

This lack of transparency can have very sudden negative consequences for other investors in  companies, significantly hampering capital formation. Archegos, through its total return swap  positions, secretly held positions equivalent to over 10% of the total outstanding shares of  CBSViacom, Discovery, GSX Techedu, and potentially others.1 By the time the family office’s  prime brokers Goldman Sachs, Morgan Stanley, Credit Suisse, and Nomura were forced to  liquidate Archegos’s derivatives positions, an estimated $194 billion in market value was  collectively lost by all shareholders of those stocks.2 The banks themselves also took about $10 billion in losses3since they could not clearly see through Forms 13-F and 13-D the extent to  which Archegos was also borrowing heavily from other banks, leaving all of them severely  undercollateralized and forced to try to jump ahead of each other to suddenly sell.4 

As long as the existing reporting loopholes remain open, the SEC and the Treasury’s Financial  Stability Oversight Council (FSOC) cannot adequately monitor: 

  • how leveraged certain hedge funds are and; 
  • how a future downturn in the financial markets could lead to significantly greater losses  for these funds as well as for the global systemically important banks (G-SIBs) that lend  to them.5

Lack of transparency makes it easier for hedge funds to demand changes that may be harmful  to other stakeholders and long term company performance. 

The reporting exemptions for derivative positions under Forms 13-F and 13-D also allow hedge  funds to quietly amass positions, which they can then suddenly announce while demanding changes that boost the immediate value of their holdings at the longer term expense of  companies and their workers. 

For example, in September 2019 Hedge fund Elliott Management surprised the management of  AT&T by issuing a letter saying that it had a $3.2 billion stake representing about 1% in the  company and demanding that AT&T’s management reduce costs and lay off workers in order to  raise dividend payments and share repurchases. AT&T’s then CEO Randall Stephenson signed a  Business Roundtable pledge in August 2019 to serve all of the company’s stakeholders, not just  shareholders, but Stephenson acquiesced and eliminated 23,000 jobs (or 9% of its total  workforce), raised its dividend by 2%, and bought back $7.5 billion of stock.6 

Elliott Management’s Form 13-F filing on November 14, 2019 only showed the hedge fund holding $118.25 million in stock, suggesting that the rest of its position was held through selling  put options (economically equivalent to holding the stock) instead.7 AT&T management had no  visibility into the size of its positions or changes in those positions. 

Earlier in 2017, Elliott claimed a 9.2% stake of AthenaHealth while reporting actual stock  holdings of just under 1%8 and pushed for changes there. AthenaHealth’s then CEO Jonathan  Bush said operating in that context was like having a “gun to your head”, and he came to regret  the cost cuts he made because of the harmful effects they had on the morale of employees  and overall culture of the company.9 

Closing the 13-F and 13-D loopholes will not end hedge fund demands, but it would end the  additional unfair advantage of surprise, allowing company management to understand those positions both before and following such demands.  

Closing these loopholes would also end a significant distortion in corporate governance in  which owners of a large percentage of shares must rightly put other shareholders on notice of  their stake, but hedge funds can mask their ownership and their incentives through the use of  complex financial products.  


We urge the SEC move swiftly to close these loopholes and to cut down on the reporting lag on  both Forms 13-F and 13-D so that basic reporting requirements apply no matter how positions  are constructed. 


  1. Total return swaps (TRS) and contract for differences (CFDs), which do not bring voting  rights, but have the same economic exposure as shares, should be required to be  reported on both Forms 13-F and 13-D to give a clearer picture of how much an  institutional investor owns in a stock. 
  2. While long options positions must be reported on both 13-F and 13-D reports, short  options such as selling puts (similar to being long a stock) or selling calls (similar to  shorting a stock) are not currently subject to the same requirements. Reporting should  be required for these instruments as well so that funds cannot use them to avoid  scrutiny.  
  3. Quarterly 13-F reports should be updated to require disclosure of short positions. Other investors should not be left in the dark as to which funds have vested interests against a  company 
  4. Given the significant improvements in technology since the timelines were set, both the  10-day deadline to file Form 13-D and the 45 days after quarter end deadline to file  Form 13-F should be significantly shortened in order to provide investors with more up  to date information 

We are encouraged to see that an expansion of the Form 13-F and 13-D reporting requirements  to include derivatives is on the Commission’s agenda.10 We strongly encourage the Commission  to follow through and close these long running loopholes in order to create safer and more  transparent public markets.