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SEC Files Lawsuit Against Melville Ten Cate Over Phony Textron Takeover Bid

The U.S. Securities and Exchange Commission on Tuesday said it has filed a lawsuit against Melville ten Cate for making a phony offer to purchase Textron Inc. for about $13.8 billion.

The SEC has filed the complaint in federal district court in Manhattan. It alleges that on November 9, 2020, ten Cate and Xcalibur Aerospace, Ltd., a now-defunct private company ten Cate controlled, placed an advertisement in The New York Times announcing a proposed purchase of all existing stock of Textron for $60.50 a share, a 56 percent premium over the stock's previous closing price.

This advertisement led to a surge in Textron trading and a subsequent trading halt. The SEC has charged ten Cate with violating the antifraud provisions of the federal securities laws.

According to the complaint, the announcement was false and misleading because ten Cate and Xcalibur lacked the financial resources to complete the transaction, which would have required more than $14 billion.

The advertisement also described Xcalibur's corporate parent as a "diversified global investment company," when actually it had no operations or assets and had been deactivated for failure to pay taxes.

"We allege that the defendant, ten Cate, pretended to run a financially viable business while leaving a trail of bad debts that included never paying for the very advertisement that announced the fictitious offer," said Carolyn Welshhans, Associate Director of the SEC's Division of Enforcement. "The SEC will continue to pursue those who disrupt our markets and spread materially misleading information to investors through the media or the SEC's EDGAR system."

The SEC is seeking permanent and conduct-based injunctions, a penalty, and an officer and director bar. In a parallel action, the U.S. Attorney's Office for the Southern District of New York announced criminal charges against ten Cate.

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