In re EXPLORADOR CAPITAL
summary
Explorador Capital Management, LLC violated Rule 105 of Regulation M by short-selling 22,394 shares of Arcos Dorados Holdings Inc. during the restricted period and then purchasing shares in its follow-on offering, generating $83,722 in illicit profits, and agreed to a settlement with the SEC including disgorgement, interest, and a civil penalty totaling $155,658.65.
paragraph
Explorador Capital Management, LLC, a Delaware-registered investment firm based in São Paulo, violated Rule 105 of Regulation M by selling short 22,394 shares of Arcos Dorados Holdings Inc. (ARCO) during the restricted period prior to a follow-on offering and subsequently purchasing 50,000 shares in that offering. The violation yielded $83,722 in illicit profits—$78,383 from the price arbitrage between the short sale and offering price, and $5,339 from purchasing the remaining 27,606 shares at a discount to market value. The SEC accepted Explorador’s settlement offer, imposing a cease-and-desist order, disgorgement of $83,722, $6,936.65 in prejudgment interest, and a $65,000 civil penalty, totaling $155,658.65, while noting the firm’s cooperation and remedial efforts.
narrative
Explorador Capital Management, LLC, a Delaware-registered investment advisory firm headquartered in São Paulo, Brazil, violated Rule 105 of Regulation M under the Securities Exchange Act of 1934 by selling short 22,394 shares of Arcos Dorados Holdings Inc. (ARCO) during the restricted period, which began five business days before the pricing of a follow-on offering. On October 19, 2011, ARCO priced its offering at $22.00 per share, and Explorador purchased 50,000 shares in the offering, including the 22,394 shares it had previously shorted, resulting in a profit of $78,383.48 from the price differential. Additionally, Explorador gained $5,339 by purchasing the remaining 27,606 shares at the offering price, which was below the prevailing market value, bringing total illicit profits to $83,722. Rule 105 imposes strict liability, meaning intent is irrelevant, and the SEC found Explorador’s conduct clearly violated the rule’s prophylactic purpose of preventing manipulative short-selling in connection with public offerings. In settlement, Explorador consented to a cease-and-desist order without admitting or denying the findings, agreed to disgorge $83,722 in profits, pay $6,936.65 in prejudgment interest, and a $65,000 civil penalty, totaling $155,658.65. The SEC acknowledged the firm’s prompt remedial actions and cooperation during the investigation as mitigating factors in determining the penalty amount. All payments were required to be sent to the SEC’s Oklahoma City address with proper case identification and a copy forwarded to its Washington, D.C. office.
Classified market-manipulation(confidence 100%). EDGAR detection: forms SC 13D/G/13F· recall 53% / precision 9%. detection rule →
Statutes
31 U.S.C. 371717 C.F.R. § 242.10517 C.F.R. § 242.105(a)SECTION 21C OF THE SECURITIES EXCHANGE ACT
Parties
cease-and-desist proceedings against explorador capital management, llcexplorador capital management, llcsec since march 2006Securities and Exchange Commission
Keywords
exploradorcommissionrespondentsecurities exchangeexchangeexplorador capitalrestricted periodsecuritiesorderproceedingsofferingcapital managementshortpursuantcapital
Extracted insights
Dollar amounts 8
- $106.00M $106 million $100M–$1B
- $1.00M $1,000,000 $1M–$10M
- $156K $155,658 $100K–$1M
- $84K $83,722 $10K–$100K
- $78K $78,383 $10K–$100K
- $65K $65,000 $10K–$100K
- $7K $6,936 <$10K
- $5K $5,339 <$10K
Entities 4
- company cease-and-desist proceedings against explorador capital management, llc
- company explorador capital management, llc
- agency sec since march 2006
- agency Securities and Exchange Commission
Triples 7
- Securities And Exchange Commission instituted cease-and-desist proceedings against Explorador Capital Management, LLC
- Explorador Capital Management, LLC violated Rule 105 of Regulation M
- Explorador Capital Management, LLC sold short equity security during the restricted period
- Explorador Capital Management, LLC bought offering shares from an underwriter
- violation resulted in profits of $83,722
- Explorador Capital Management, LLC registered with SEC since March 2006
- Explorador Capital Management, LLC has total assets under management in excess of $106 million
Text layers
Extracted body text (8,470c)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 73118 / September 16, 2014
ADMINISTRATIVE PROCEEDING
File No. 3-16122
In the Matter of
EXPLORADOR CAPITAL
MANAGEMENT, LLC
Respondent.
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO
SECTION 21C OF THE SECURITIES
EXCHANGE ACT OF 1934, MAKING
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER AND CIVIL
PENALTY
I.
The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities
Exchange Act of 1934 (“Exchange Act”), against Explorador Capital Management, LLC
(“Explorador” or “Respondent”).
II.
In anticipation of the institution of these proceedings, Respondent has submitted an Offer
of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the
purpose of these proceedings and any other proceedings brought by or on behalf of the
Commission, or to which the Commission is a party, and without admitting or denying the findings
herein, except as to the Commission’s jurisdiction over it and the subject matter of these
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making
Findings, and Imposing a Cease-and-Desist Order and Civil Penalty (“Order”), as set forth below.
III.
On the basis of this Order and Respondent’s Offer, the Commission finds
1
that:
1
The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other person
or entity in this or any other proceeding.
2
Summary
1. These proceedings arise out of a violation of Rule 105 of Regulation M of the
Exchange Act by Explorador, a Brazilian investment firm. Rule 105 prohibits selling short an
equity security that is the subject of certain public offerings and purchasing the offered security
from an underwriter or broker or dealer participating in the offering, if such short sale was effected
during the restricted period as defined therein.
2. In October 2011, Explorador bought offering shares from an underwriter or broker
or dealer participating in a follow-on public offering after having sold short the same security
during the Rule 105 restricted period. This violation resulted in profits of $83,722.
Respondent
3. Explorador Capital Management, LLC is a limited liability company incorporated
in Delaware with its principal place of business in Sao Paulo, Brazil. Explorador Capital
Management, LLC has been registered with the SEC since March 2006 and provides advisory
services to one foreign fund and four domestic funds. Explorador Capital Management, LLC has
total assets under management in excess of $106 million.
Legal Framework
4. Rule 105 makes it unlawful for a person to purchase equity securities in certain
public offerings from an underwriter, broker, or dealer participating in the offering if that person
sold short the security that is the subject of the offering during the restricted period defined in the
rule, absent an exception. 17 C.F.R. § 242.105; see Short Selling in Connection with a Public
Offering, Rel. No. 34-56206, 72 Fed. Reg. 45094 (Aug. 10, 2007) (effective Oct. 9, 2007). The
Rule 105 restricted period is the shorter of the period: (1) beginning five business days before the
pricing of the offered securities and ending with such pricing; or (2) beginning with the initial
filing of a registration statement or notification on Form 1-A or Form 1-E and ending with the
pricing. 17 C.F.R. § 242.105(a)(1) and (a)(2).
5. The Commission adopted Rule 105 “to foster secondary and follow-on offering
prices that are determined by independent market dynamics and not by potentially manipulative
activity.” 72 Fed. Reg. 45094. Rule 105 is prophylactic and prohibits the conduct irrespective of
the short seller’s intent in effecting the short sale. Id.
Explorador’s Violation of Rule 105 of Regulation M
6. On October 13, 2011, Explorador sold short 22,394 shares of Arcos Dorados
Holdings Inc. (“ARCO”) during the restricted period at a price of $25.5002 per share. On October
19, 2011, ARCO announced the pricing of a follow-on offering of its common stock at $22.00 per
share. Explorador received an allocation of 50,000 shares in that offering. The difference between
Explorador’s proceeds received from the restricted period short sales of ARCO shares and the
price paid for the 22,394 shares received in the offering was $78,383.48. Respondent also
3
improperly obtained a benefit of $5,339 by purchasing the remaining 27,606 shares at a discount
from ARCO’s market price. Thus, Explorador’s participation in the ARCO offering resulted in
total profits of $83,722.
7. In total, Explorador’s violation of Rule 105 resulted in profits of $83,722.
Violation
8. As a result of the conduct described above, Explorador violated Rule 105 of
Regulation M under the Exchange Act.
Explorador’s Remedial Efforts & Cooperation
9. In determining to accept the Offer, the Commission considered remedial
acts promptly undertaken by Respondent and cooperation afforded to Commission staff.
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions
agreed to in Respondent Explorador’s Offer.
Accordingly, it is hereby ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Respondent Explorador cease and
desist from committing or causing any violations and any future violations of Rule 105 of
Regulation M of the Exchange Act;
B. Explorador shall within fourteen (14) days of the entry of this Order, pay
disgorgement of $83,722, prejudgment interest of $6,936.65, and a civil money penalty in the
amount of $65,000 (for a total of $155,658.65) to the United States Treasury. If timely payment is
not made on the disgorgement amount, additional interest shall accrue pursuant to SEC Rule of
Practice 600. If timely payment is not made on the civil money penalty, additional interest shall
accrue pursuant to 31 U.S.C. 3717. Payments must be made in one of the following ways:
(1) Respondent may transmit payment electronically to the Commission, which will
provide detailed ACH transfer/Fedwire instructions upon request;
2
(2) Respondent may make direct payment from a bank account via Pay.gov through the
SEC website at http://www.sec.gov/about/offices/ofm.htm; or
(3) Respondent may pay by certified check, bank cashier’s check, or United States postal
money order, made payable to the Securities and Exchange Commission and hand-
delivered or mailed to:
2
The minimum threshold for transmission of payment electronically is $1,000,000. For amounts below the
threshold, respondents must make payments pursuant to options (2) or (3) above.
4
Enterprise Services Center
Accounts Receivable Branch
HQ Bldg., Room 181, AMZ-341
6500 South MacArthur Boulevard
Oklahoma City, OK 73169
Payments by check or money order must be accompanied by a cover letter identifying
Explorador as a Respondent in these proceedings, and the file number of these proceedings; a copy
of the cover letter and check or money order must be sent to Gerald W. Hodgkins, Associate
Director, Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E.,
Washington, DC 20549.
By the Commission.
Jill M. Peterson
Assistant Secretary
OCR text (7,832c · tika · 95% conf)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 73118 / September 16, 2014
ADMINISTRATIVE PROCEEDING
File No. 3-16122
In the Matter of
EXPLORADOR CAPITAL
MANAGEMENT, LLC
Respondent.
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO
SECTION 21C OF THE SECURITIES
EXCHANGE ACT OF 1934, MAKING
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER AND CIVIL
PENALTY
I.
The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities
Exchange Act of 1934 (“Exchange Act”), against Explorador Capital Management, LLC
(“Explorador” or “Respondent”).
II.
In anticipation of the institution of these proceedings, Respondent has submitted an Offer
of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the
purpose of these proceedings and any other proceedings brought by or on behalf of the
Commission, or to which the Commission is a party, and without admitting or denying the findings
herein, except as to the Commission’s jurisdiction over it and the subject matter of these
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making
Findings, and Imposing a Cease-and-Desist Order and Civil Penalty (“Order”), as set forth below.
III.
On the basis of this Order and Respondent’s Offer, the Commission finds1 that:
1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other person
or entity in this or any other proceeding.
2
Summary
1. These proceedings arise out of a violation of Rule 105 of Regulation M of the
Exchange Act by Explorador, a Brazilian investment firm. Rule 105 prohibits selling short an
equity security that is the subject of certain public offerings and purchasing the offered security
from an underwriter or broker or dealer participating in the offering, if such short sale was effected
during the restricted period as defined therein.
2. In October 2011, Explorador bought offering shares from an underwriter or broker
or dealer participating in a follow-on public offering after having sold short the same security
during the Rule 105 restricted period. This violation resulted in profits of $83,722.
Respondent
3. Explorador Capital Management, LLC is a limited liability company incorporated
in Delaware with its principal place of business in Sao Paulo, Brazil. Explorador Capital
Management, LLC has been registered with the SEC since March 2006 and provides advisory
services to one foreign fund and four domestic funds. Explorador Capital Management, LLC has
total assets under management in excess of $106 million.
Legal Framework
4. Rule 105 makes it unlawful for a person to purchase equity securities in certain
public offerings from an underwriter, broker, or dealer participating in the offering if that person
sold short the security that is the subject of the offering during the restricted period defined in the
rule, absent an exception. 17 C.F.R. § 242.105; see Short Selling in Connection with a Public
Offering, Rel. No. 34-56206, 72 Fed. Reg. 45094 (Aug. 10, 2007) (effective Oct. 9, 2007). The
Rule 105 restricted period is the shorter of the period: (1) beginning five business days before the
pricing of the offered securities and ending with such pricing; or (2) beginning with the initial
filing of a registration statement or notification on Form 1-A or Form 1-E and ending with the
pricing. 17 C.F.R. § 242.105(a)(1) and (a)(2).
5. The Commission adopted Rule 105 “to foster secondary and follow-on offering
prices that are determined by independent market dynamics and not by potentially manipulative
activity.” 72 Fed. Reg. 45094. Rule 105 is prophylactic and prohibits the conduct irrespective of
the short seller’s intent in effecting the short sale. Id.
Explorador’s Violation of Rule 105 of Regulation M
6. On October 13, 2011, Explorador sold short 22,394 shares of Arcos Dorados
Holdings Inc. (“ARCO”) during the restricted period at a price of $25.5002 per share. On October
19, 2011, ARCO announced the pricing of a follow-on offering of its common stock at $22.00 per
share. Explorador received an allocation of 50,000 shares in that offering. The difference between
Explorador’s proceeds received from the restricted period short sales of ARCO shares and the
price paid for the 22,394 shares received in the offering was $78,383.48. Respondent also
3
improperly obtained a benefit of $5,339 by purchasing the remaining 27,606 shares at a discount
from ARCO’s market price. Thus, Explorador’s participation in the ARCO offering resulted in
total profits of $83,722.
7. In total, Explorador’s violation of Rule 105 resulted in profits of $83,722.
Violation
8. As a result of the conduct described above, Explorador violated Rule 105 of
Regulation M under the Exchange Act.
Explorador’s Remedial Efforts & Cooperation
9. In determining to accept the Offer, the Commission considered remedial
acts promptly undertaken by Respondent and cooperation afforded to Commission staff.
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions
agreed to in Respondent Explorador’s Offer.
Accordingly, it is hereby ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Respondent Explorador cease and
desist from committing or causing any violations and any future violations of Rule 105 of
Regulation M of the Exchange Act;
B. Explorador shall within fourteen (14) days of the entry of this Order, pay
disgorgement of $83,722, prejudgment interest of $6,936.65, and a civil money penalty in the
amount of $65,000 (for a total of $155,658.65) to the United States Treasury. If timely payment is
not made on the disgorgement amount, additional interest shall accrue pursuant to SEC Rule of
Practice 600. If timely payment is not made on the civil money penalty, additional interest shall
accrue pursuant to 31 U.S.C. 3717. Payments must be made in one of the following ways:
(1) Respondent may transmit payment electronically to the Commission, which will
provide detailed ACH transfer/Fedwire instructions upon request;2
(2) Respondent may make direct payment from a bank account via Pay.gov through the
SEC website at http://www.sec.gov/about/offices/ofm.htm; or
(3) Respondent may pay by certified check, bank cashier’s check, or United States postal
money order, made payable to the Securities and Exchange Commission and hand-
delivered or mailed to:
2 The minimum threshold for transmission of payment electronically is $1,000,000. For amounts below the
threshold, respondents must make payments pursuant to options (2) or (3) above.
4
Enterprise Services Center
Accounts Receivable Branch
HQ Bldg., Room 181, AMZ-341
6500 South MacArthur Boulevard
Oklahoma City, OK 73169
Payments by check or money order must be accompanied by a cover letter identifying
Explorador as a Respondent in these proceedings, and the file number of these proceedings; a copy
of the cover letter and check or money order must be sent to Gerald W. Hodgkins, Associate
Director, Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E.,
Washington, DC 20549.
By the Commission.
Jill M. Peterson
Assistant Secretary