2014-01-01 SEC Press press_release 66 KB 5,796 chars

SEC Sanctions 19 Firms and Individual Trader for Short Selling Violations in Advance of Stock Offerings

Release
2014-195
Source PDF JSON
summary

The SEC charged 19 hedge fund and private equity firms and one individual trader, James C. Parsons, with violating Rule 105 by short-selling stocks before participating in follow-on offerings, resulting in over $9 million in combined disgorgement, interest, and penalties, with all parties settling without admitting or denying guilt.

paragraph

The SEC imposed over $9 million in total sanctions on 19 firms and one individual trader for violating Rule 105 of Regulation M by short-selling stocks within five business days of participating in follow-on public offerings, thereby artificially depressing prices and reducing issuer proceeds. RA Capital Management paid the largest total penalty of approximately $3.6 million, followed by BlackRock at $1.7 million and Whitebox Advisors at over $1.2 million, while Nob Hill Capital was exempted from penalties due to financial hardship. All respondents settled without admitting or denying guilt, as part of a coordinated SEC initiative supported by FINRA that used standardized methodologies to identify violations and ensure consistent enforcement.

narrative

The SEC announced sanctions against 19 hedge fund and private equity firms and one individual trader, James C. Parsons, for violating Rule 105 of Regulation M by engaging in short sales of stocks within five business days of participating in follow-on public offerings, a practice that artificially depresses prices and undermines issuer proceeds. Collectively, the respondents agreed to pay more than $9 million in disgorgement, prejudgment interest, and penalties, with RA Capital Management paying the highest total of $3,624,359.21, followed by BlackRock at $1,675,350.13 and Whitebox Advisors at $1,202,925.32. Nob Hill Capital Management was exempted from penalties after attesting to financial hardship, while all other parties settled without admitting or denying the allegations. The SEC’s Enforcement Division, working closely with FINRA and its National Exam Program, used uniform methodologies to efficiently identify violations and calculate profits and penalties, ensuring consistency across cases. The initiative highlights the SEC’s ongoing focus on deterring market manipulation in equity offerings and underscores the need for robust compliance programs among investment advisers. Enforcement staff relied on trading data and coordinated investigations led by attorneys including Allen Flood, Heidi Mitza, and Lauren Poper. The action serves as a strong deterrent against manipulative trading practices in public offerings and reinforces the importance of regulatory oversight in maintaining fair market pricing.

Enriched metadata

Scheme
market-manipulation (100%)
Outcome
settled
Disgorgement
$2,646,395
Civil penalty
$67,765,720,000
Victim loss
$9,000,000
Classified market-manipulation(confidence 100%). EDGAR detection: forms SC 13D/G/13F· recall 53% / precision 9%. detection rule →
Parties
andrew j. ceresneyantipodean advisorsblackrock institutional trust companydirector of sec division of enforcementeast side holdings iiformula growthgreat point partnersjames c. parsonsSecurities and Exchange Commission
Keywords
firm agreeddisgorgement prejudgmentprejudgment interestinterest penaltypayfirmagreeddisgorgementinterestpenaltyprejudgmentcapital managementyork-based firmsecindividual trader

Exhibits & Attached Documents (20)

Extracted insights

Dollar amounts 49
  • $9.00M $9 million $1M–$10M
  • $2.65M $2,646,395 $1M–$10M
  • $1.12M $1,122,400 $1M–$10M
  • $905K $904,570 $100K–$1M
  • $789K $788,779 $100K–$1M
  • $530K $530,479 $100K–$1M
  • $366K $365,592 $100K–$1M
  • $283K $283,480 $100K–$1M
  • $263K $262,744 $100K–$1M
  • $195K $194,797 $100K–$1M
  • $193K $192,730 $100K–$1M
  • $157K $156,631 $100K–$1M
Entities 9
  • person andrew j. ceresney
  • company antipodean advisors
  • company blackrock institutional trust company
  • agency director of sec division of enforcement
  • person east side holdings ii
  • person formula growth
  • company great point partners
  • person james c. parsons
  • agency Securities and Exchange Commission
Triples 15
  • SEC announced sanctions hedge fund advisers and private equity firms for illegal Rule 105 violations
  • SEC charged 19 firms and one individual trader with Rule 105 violations
  • 19 firms and one individual trader agreed to pay more than $9 million in disgorgement, interest, and penalties
  • Advent Capital Management agreed to pay $75,292 disgorgement, $3,836.36 prejudgment interest, $65,000 penalty
  • Antipodean Advisors agreed to pay $27,970 disgorgement, $702.83 prejudgment interest, $65,000 penalty
  • BlackRock Institutional Trust Company agreed to pay $1,122,400 disgorgement, $22,471.13 prejudgment interest, $530,479 penalty
  • East Side Holdings II agreed to pay $26,613 disgorgement, $397.38 prejudgment interest, $130,000 penalty
  • Explorador Capital Management agreed to pay $83,722 disgorgement, $6,936.65 prejudgment interest, $65,000 penalty
  • Formula Growth agreed to pay $42,488 disgorgement, $4,255.15 prejudgment interest, $65,000 penalty
  • Great Point Partners agreed to pay $43,068 disgorgement, $1,529.13 prejudgment interest, $65,000 penalty
  • Indaba Capital Management agreed to pay $194,797 disgorgement, $11,990.79 prejudgment interest, $97,398.59 penalty
  • Ironman Capital Management agreed to pay $21,844 disgorgement, $382.66 prejudgment interest, $65,000 penalty
  • James C. Parsons agreed to pay $135,531 disgorgement, $3,063.90 prejudgment interest, penalty amount
  • Rule 105 violations involve short selling within five business days of participating in stock offering
  • Andrew J. Ceresney is Director of SEC Division of Enforcement
PDF (from attached: pdf)
In re ADVENT CAPITAL · Source
Text layers
Extracted body text (5,796c) 
The Securities and Exchange Commission today announced the latest sanctions in a continuing enforcement initiative uncovering certain hedge fund advisers and private equity firms that have illegally participated in an offering of a stock after short selling it during a restricted period. The SEC last year announced the initiative to enhance enforcement of Rule 105 of Regulation M, which is designed to preserve the independent pricing mechanisms of the securities markets and prevent stock price manipulation. Rule 105 typically prohibits firms or individuals from short selling a stock within five business days of participating in an offering for that same stock. Such dual activity typically results in illicit profits for the firms or individuals while reducing the offering proceeds for a company by artificially depressing the market price shortly before the company prices the stock. The SEC’s investigations found that 19 firms and one individual trader charged in these latest cases engaged in short selling of particular stocks shortly before they bought shares from an underwriter, broker, or dealer participating in a follow-on public offering. Each firm and the individual trader have agreed to settle the SEC’s charges and pay a combined total of more than $9 million in disgorgement, interest, and penalties. “Rule 105 is an important preventive measure designed to protect issuers from downward pressure on their stock price in advance of offerings,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “These charges should remind investment advisers and others of the need for robust and comprehensive compliance programs covering Rule 105 compliance.” In its ongoing Rule 105 initiative, the Enforcement Division is able to quickly identify potential violations through close coordination with the Financial Industry Regulatory Authority (FINRA) and the SEC’s National Exam Program. Enforcement staff then seeks trading data and certain other relevant information from the traders. The Enforcement Division expedites these cases by using uniform methodologies for determining trading profits and deciding appropriate penalties. This streamlined effort ensures consistency across all cases while expending a modest amount of agency resources. The SEC today issued the following orders instituting settled administrative proceedings for Rule 105 violations during the last few years. The orders identify the following monetary sanctions: Advent Capital Management – The New York-based firm agreed to pay disgorgement of $75,292, prejudgment interest of $3,836.36, and a penalty of $65,000. Antipodean Advisors – The New York-based firm agreed to pay disgorgement of $27,970, prejudgment interest of $702.83, and a penalty of $65,000. BlackRock Institutional Trust Company – The California-based firm agreed to pay disgorgement of $1,122,400, prejudgment interest of $22,471.13, and a penalty of $530,479. East Side Holdings II – The New Jersey-based firm agreed to pay disgorgement of $26,613, prejudgment interest of $397.38, and a penalty of $130,000. Explorador Capital Management – The Brazil-based firm agreed to pay disgorgement of $83,722, prejudgment interest of $6,936.65, and a penalty of $65,000. Formula Growth – The Canada-based firm agreed to pay disgorgement of $42,488, prejudgment interest of $4,255.15, and a penalty of $65,000. Great Point Partners – The Connecticut-based firm agreed to pay disgorgement of $43,068, prejudgment interest of $1,529.13, and a penalty of $65,000. Indaba Capital Management – The California-based firm agreed to pay disgorgement of $194,797, prejudgment interest of $11,990.79, and a penalty of $97,398.59. Ironman Capital Management – The Texas-based firm agreed to pay disgorgement of $21,844, prejudgment interest of $382.66, and a penalty of $65,000. James C. Parsons – An individual trader who lives in New York City agreed to pay disgorgement of $135,531, prejudgment interest of $3,063.90, and a penalty of $67,765.72. Midwood Capital Management – The Massachusetts-based firm agreed to pay disgorgement of $72,699, prejudgment interest of $5,248.19, and a penalty of $65,000. Nob Hill Capital Management – The California-based firm made sworn statements to the Commission attesting to a financial condition that makes it unable to pay any penalty. RA Capital Management – The Massachusetts-based firm agreed to pay disgorgement of $2,646,395.21, prejudgment interest of $73,394.16, and a penalty of $904,570.84. Rockwood Investment Management (also known as Rockwood Partners LP) – The Connecticut-based firm agreed to pay disgorgement of $156,631, prejudgment interest of $9,222.16, and a penalty of $72,135.23. Seawolf Capital – The New York-based firm agreed to pay disgorgement of $192,730, prejudgment interest of $7,842.28, and a penalty of $96,365. Solus Alternative Asset Management – The New York-based firm agreed to pay disgorgement of $39,600, prejudgment interest of $895.22, and a penalty of $65,000. SuttonBrook Capital Management – The New York-based firm agreed to pay disgorgement of $70,000. Troubh Partners – The New York-based firm agreed to pay disgorgement of $262,744, prejudgment interest of $39,315.13, and a penalty of $106,651.15. Vinci Partners Investimentos – The Brazil-based firm agreed to pay disgorgement of $283,480, prejudgment interest of $23,487.08, and a penalty of $141,740. Whitebox Advisors – The Minnesota-based firm agreed to pay disgorgement of $788,779, prejudgment interest of $48,553.49, and a penalty of $365,592.83. The SEC’s investigations were conducted by Allen A. Flood, Heidi M. Mitza, Lauren B. Poper, Kevin J. Gershfeld, and Wendy Kong and jointly supervised by Anita B. Bandy and Conway T. Dodge. The SEC appreciates the assistance of FINRA.
OCR text (5,796c · plain-text · 99% conf) 
The Securities and Exchange Commission today announced the latest sanctions in a continuing enforcement initiative uncovering certain hedge fund advisers and private equity firms that have illegally participated in an offering of a stock after short selling it during a restricted period. The SEC last year announced the initiative to enhance enforcement of Rule 105 of Regulation M, which is designed to preserve the independent pricing mechanisms of the securities markets and prevent stock price manipulation. Rule 105 typically prohibits firms or individuals from short selling a stock within five business days of participating in an offering for that same stock. Such dual activity typically results in illicit profits for the firms or individuals while reducing the offering proceeds for a company by artificially depressing the market price shortly before the company prices the stock. The SEC’s investigations found that 19 firms and one individual trader charged in these latest cases engaged in short selling of particular stocks shortly before they bought shares from an underwriter, broker, or dealer participating in a follow-on public offering. Each firm and the individual trader have agreed to settle the SEC’s charges and pay a combined total of more than $9 million in disgorgement, interest, and penalties. “Rule 105 is an important preventive measure designed to protect issuers from downward pressure on their stock price in advance of offerings,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “These charges should remind investment advisers and others of the need for robust and comprehensive compliance programs covering Rule 105 compliance.” In its ongoing Rule 105 initiative, the Enforcement Division is able to quickly identify potential violations through close coordination with the Financial Industry Regulatory Authority (FINRA) and the SEC’s National Exam Program. Enforcement staff then seeks trading data and certain other relevant information from the traders. The Enforcement Division expedites these cases by using uniform methodologies for determining trading profits and deciding appropriate penalties. This streamlined effort ensures consistency across all cases while expending a modest amount of agency resources. The SEC today issued the following orders instituting settled administrative proceedings for Rule 105 violations during the last few years. The orders identify the following monetary sanctions: Advent Capital Management – The New York-based firm agreed to pay disgorgement of $75,292, prejudgment interest of $3,836.36, and a penalty of $65,000. Antipodean Advisors – The New York-based firm agreed to pay disgorgement of $27,970, prejudgment interest of $702.83, and a penalty of $65,000. BlackRock Institutional Trust Company – The California-based firm agreed to pay disgorgement of $1,122,400, prejudgment interest of $22,471.13, and a penalty of $530,479. East Side Holdings II – The New Jersey-based firm agreed to pay disgorgement of $26,613, prejudgment interest of $397.38, and a penalty of $130,000. Explorador Capital Management – The Brazil-based firm agreed to pay disgorgement of $83,722, prejudgment interest of $6,936.65, and a penalty of $65,000. Formula Growth – The Canada-based firm agreed to pay disgorgement of $42,488, prejudgment interest of $4,255.15, and a penalty of $65,000. Great Point Partners – The Connecticut-based firm agreed to pay disgorgement of $43,068, prejudgment interest of $1,529.13, and a penalty of $65,000. Indaba Capital Management – The California-based firm agreed to pay disgorgement of $194,797, prejudgment interest of $11,990.79, and a penalty of $97,398.59. Ironman Capital Management – The Texas-based firm agreed to pay disgorgement of $21,844, prejudgment interest of $382.66, and a penalty of $65,000. James C. Parsons – An individual trader who lives in New York City agreed to pay disgorgement of $135,531, prejudgment interest of $3,063.90, and a penalty of $67,765.72. Midwood Capital Management – The Massachusetts-based firm agreed to pay disgorgement of $72,699, prejudgment interest of $5,248.19, and a penalty of $65,000. Nob Hill Capital Management – The California-based firm made sworn statements to the Commission attesting to a financial condition that makes it unable to pay any penalty. RA Capital Management – The Massachusetts-based firm agreed to pay disgorgement of $2,646,395.21, prejudgment interest of $73,394.16, and a penalty of $904,570.84. Rockwood Investment Management (also known as Rockwood Partners LP) – The Connecticut-based firm agreed to pay disgorgement of $156,631, prejudgment interest of $9,222.16, and a penalty of $72,135.23. Seawolf Capital – The New York-based firm agreed to pay disgorgement of $192,730, prejudgment interest of $7,842.28, and a penalty of $96,365. Solus Alternative Asset Management – The New York-based firm agreed to pay disgorgement of $39,600, prejudgment interest of $895.22, and a penalty of $65,000. SuttonBrook Capital Management – The New York-based firm agreed to pay disgorgement of $70,000. Troubh Partners – The New York-based firm agreed to pay disgorgement of $262,744, prejudgment interest of $39,315.13, and a penalty of $106,651.15. Vinci Partners Investimentos – The Brazil-based firm agreed to pay disgorgement of $283,480, prejudgment interest of $23,487.08, and a penalty of $141,740. Whitebox Advisors – The Minnesota-based firm agreed to pay disgorgement of $788,779, prejudgment interest of $48,553.49, and a penalty of $365,592.83. The SEC’s investigations were conducted by Allen A. Flood, Heidi M. Mitza, Lauren B. Poper, Kevin J. Gershfeld, and Wendy Kong and jointly supervised by Anita B. Bandy and Conway T. Dodge. The SEC appreciates the assistance of FINRA.

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