“If Massa says yes, who should I oppose?”: Softbank transaction triggers internal compliance tensions

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SoftBank tried to complete the key sale of its T-Mobile shares and the Japan’s largest share repurchase Whether the investment group is at risk of violating the rules of insider trading has sparked internal controversy.

This conflict is just one of many incidents in which current and former executives believe that Sun Zhengyi’s competitive and instinct-driven culture often conflicts with compliance procedures.

In the past 12 months, some problems have surfaced, making people doubt Sun Zhengyi’s commitment to strengthen governance after the outbreak. The collapse surrounding WeWork And Greensail. After Chad Fentress, the company’s former head of compliance, resigned abruptly in September last year, some inside the company questioned the wisdom of combining chief compliance officer and general counsel into one role.

There are also concerns about how the second Vision Fund (VFII) will invest, although executives have provided a sequel tool to the $100 billion technology fund backed by Saudi Arabia because it is more disciplined than its predecessor.

According to internal communications described to the Financial Times, in May last year, the company’s focus was whether it was possible to modify the terms of its $23 billion share repurchase program, and the company’s board of directors was also finalizing the sale of its US carrier T-Mobile Shares.

Legal opinions are divided, and some people within the company believe that the conclusion of the T-Mobile transaction is uncertain and therefore does not need to be disclosed. The group also hired external legal counsel to consult whether the T-Mobile transaction would constitute material non-public information sensitive to the market, which may require the suspension of stock repurchases, but it has not yet reached a clear conclusion.

SoftBank still decided to continue to announce the repurchase terms and officially announced Sale of its shares in T-Mobile June 2020.

SoftBank told the Financial Times that each of its relevant departments is closely coordinating to review the legal and regulatory impact of business decisions under consideration. “The legal department regularly seeks external legal advice from Japanese and non-Japanese legal advisers on the company’s legal and regulatory obligations, and shares such information with other functional departments in order to make appropriate decisions,” it added.

Some issues within SoftBank merge the Chief Compliance Officer and the General Counsel into one role © Kiyoshi Ota/Bloomberg

A top M&A lawyer at Japan’s four largest law firms said that Japanese clients often raise questions about how material non-public information affects stock repurchase plans, especially when the number of such plans has soared in recent years.

The lawyer said that the openness of the regulations to interpretation and the possibility of being accused of insider trading meant that the company always tended to provide conservative advice to the company. He added that any company’s reluctance to provide written opinions may indicate that customers have chosen to take some risks.

SoftBank investors said that in other cases, its disclosure stance caused concern. In April, the Norwegian warehouse automation company AutoStore announced that SoftBank acquired 40% of the shares for US$2.8 billion In a private company-this transaction was led by a former Deutsche Bank trader Aksha Nakhta, He also led SoftBank’s “Nasdaq Whale” transaction.

People familiar with its background said that this transaction is advancing at a high speed and is in line with the current “SoftBank culture, everyone is very eager to impress Sun Zhengyi”, and compliance issues may be seen as a secondary order of pressure. An impressive acquisition.

The same person said that in this case, the transaction is particularly unusual: Naheta’s main authority is to invest in listed companies, and when it was announced, it did not mention which entity within SoftBank was buying assets.

Two people close to SoftBank said that this investment was ultimately handled by the second Vision Fund. One of the people familiar with the matter said that the transaction was not controversial.

In addition to AutoStore, SoftBank also Accelerate investment Operated by VFII, the organization has $40 billion in group capital.

However, because the fund does not include external investors, some people within the company questioned whether its investment has adequate due diligence procedures, citing the similarities with the first fund “Wild West” Culture.

In November 2020, SoftBank Greenhill Four months before the supply chain finance company filed for bankruptcy, it received US$440 million in emergency funding through the second Vision Fund.

Akshay Naheta acquired a 40% stake in the Norwegian automobile group AutoStore for US$2.8 billion © Lucy Nicholson/Reuters

Although the fund’s investment does not always need to be approved by the Japanese Group’s Investment Committee, Greensill’s funds have been reviewed by the VFII and SoftBank Group’s committees. Son and the head of the Vision Fund Rajeev Misra are members of these two committees.

According to a person familiar with the matter, although the troubles within Greensail had surfaced at the time, the group’s four-member investment committee reached almost the same conclusion as the VFII. The person familiar with the matter said: “Even though it has been reported to the Investment Committee of SoftBank Group, there is no speculation about the decision of the VFII.”

People close to the company also said that even if the group reviews these transactions, it is difficult to question Sun Zhengyi’s decision at the Vision Fund level. “If Martha has agreed, what right do I have to oppose?” one of them said.

SoftBank said the group and its subsidiaries conducted “very thorough” due diligence and compliance when assessing potential investments. “The SBG Investment Committee includes several members who are not members of the Vision Fund 2 Investment Committee, and each of them makes an independent decision to approve or reject any particular transaction,” it added.

Chief Compliance Officer and Chief Legal Officer Tim Mackey (Tim Mackey) told employees that he wants to establish a culture of transparency where they can freely express concerns about compliance and governance. “Masa agrees with employees that they should be outspoken,” said a person close to the company.

But his dual role creates a situation where when he is also responsible for legally approving the same transaction, it may be difficult to flag compliance issues for the transaction.

SoftBank said that dual roles are not uncommon globally, adding that if there is any conflict of interest, it has a deputy compliance officer to lead the compliance role.

But people inside the company worry that although McGee promises to establish a strict compliance culture, it may be difficult for him to establish it.

Additional report by Robert Smith in London

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