When a board member of a publicly traded U.S. company sells even a small personal holding, the director typically has just two business days to disclose the transaction, under securities rules to promote transparency. But when John Paulson’s hedge fund firm reduced its American International Group Inc. stake by more than 4 million shares in the fourth quarter, there was no filing on the trades for weeks, even though the billionaire is on the insurer’s board.

Paulson & Co.’s Feb. 14 filing was a Form 13F, which doesn’t include the date and price for share sales -- information that would be reported on an individual director’s filing, known as a Form 4. Instead, the Form 13F is a list of how many shares the hedge fund firm had in various companies as of Dec. 31, a quarterly requirement for large money managers.

“We are not required to file Form 4s for the funds, only for John’s individual holdings in AIG,” a representative for Paulson & Co. said by email.

The timing of the disclosure highlights a conflict between Paulson’s dual roles -- one that money managers like Bill Ackman and Jeff Ubben have handled differently. While funds benefit from keeping details of their trades secret to maximize flexibility, board members and other “insiders” are supposed to provide shareholders with more transparency about their holdings.

“The rules were meant to protect the average shareholder,” said Hong Le Webb, an attorney at Murphy & McGonigle in Washington, who specializes in disclosure regulations. Paulson’s approach is “testing the boundaries with respect to what the rules were meant to do.”

Portfolio Shifts

Paulson got a board seat at AIG last year along with a representative from Carl Icahn’s firm after the billionaires said that changes in strategy would boost the insurer’s share price. Paulson & Co. has declined to comment on why the firm sold so much of its holding, cutting the stake to about 0.5 percent of the company’s shares, according to data compiled by Bloomberg.

The firm has told AIG that it sold shares to rebalance its portfolio and meet client redemptions, according to people familiar with the discussions. The fourth-quarter sales of AIG stock were in November and early December, corresponding with a so-called window period when directors are permitted to sell, according to Paulson & Co.’s spokeswoman.

James Cox, a professor at Duke University School of Law who has written textbooks on securities law, said the timing of the firm’s disclosure could draw interest from the U.S. Securities and Exchange Commission, given that board members have strict reporting standards for their personal holdings. John Paulson and the firm’s employees and partners are the largest group of investors in his funds.

Dual Roles

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