WASHINGTON -- "Greenmail" -- a favorite and lucrative tactic of corporate raiders -- survived its first legal challenge in the Supreme Court yesterday.
Without explanation, the court voted to leave intact a federal appeals court ruling that had blocked a claim that greenmail is a form of "white collar extortion" outlawed by the federal extortion law.
The appeals court had said that a target of greenmail by corporate raider Carl C. Icahn -- Viacom International Inc. -- had suffered no damages, and thus a lawsuit seeking a tripled monetary award against him could not go forward.
Although the practice of using greenmail in corporate takeover efforts has been criticized widely and some government officials and members of Congress have wanted to try to reform it, the U.S. government has never used the federal extortion law to bring a criminal case against the practice. Moreover, there has been no effort to ban it either by Congress or by the Securities and Exchange Commission.
Greenmail, as in the Viacom case, involves a corporate raider buying a sizable interest in a company targeted for a hostile takeover. The stock purchase is made in hopes of frightening the management into buying off the threat by paying a premium price for the raider's shares.