In re FORMULA GROWTH

 
                                                 UNITED                                                 STATES OF AMERICA 
                                                                     Before                                                                     the                                                                     
                                    SECURITIES                                    AND                                    EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 73119 / September 16, 2014 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-16123 
 
 
In the Matter of 
 
FORMULA GROWTH,  
LTD.  
 
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 Formula Growth, Ltd. (“Formula Growth” 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:  
 
Summary 
 
1. These proceedings arise out of a violation of Rule 105 of Regulation M of the 
Exchange Act by Formula Growth, a Montréal-based exempt reporting adviser.  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 May 2011, Formula Growth 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 restricted period.  This violation resulted in profits of $42,488.  
 
Respondent 
 
 3. Formula Growth, Ltd. is a corporation organized under the laws of Canada with 
its principal place of business in Montréal and is registered with the Autorité des Marchés 
Financiers in Québec.  Formula Growth is an exempt reporting adviser with less than $150 
million in assets under management in the U.S.   
 
 
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. 
 
 
 
Formula Growth’s Violation of Rule 105 of Regulation M 
 
                                                 
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. 
 

6.  From May 19, 2011 through May 24, 2011, Formula Growth sold short 59,132 
shares of American International Group, Inc. (“AIG”) during the restricted period at prices ranging 
from $29.63 to $30.95 per share.  On May 24, 2011, AIG priced a follow-on offering of its 
common stock at $29 per share.  Formula Growth received an allocation of 25,000 shares in that 
offering.  The difference between Formula Growth’s proceeds received from the restricted period 
short sales of AIG shares and the price paid for the 25,000 shares received in the offering was 
$42,488.  Thus, Formula Growth’s participation in the 2011 AIG offering resulted in total profits 
of $42,488.   
 
Violations 
 
 7. As a result of the conduct described above, Formula Growth violated Rule 105 of 
Regulation M under the Exchange Act.  
 
Formula Growth’s Remedial Efforts & Cooperation 
8. 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 Formula Growth’s Offer. 
 
 Accordingly, it is hereby ORDERED that: 
 
 A. Pursuant to Section 21C of the Exchange Act, Respondent Formula Growth cease 
and desist from committing or causing any violations and any future violations of Rule 105 of 
Regulation M of the Exchange Act;   
 
 B. Formula Growth shall within fourteen (14) days of the entry of this Order, pay 
disgorgement of $42,488, prejudgment interest of $4,255.15, and a civil money penalty in the 
amount of $65,000 (for a total of $111,743.15) 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. 

 
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  
Formula Growth 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 
 

UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 73119 / September 16, 2014 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-16123 
 
 
In the Matter of 
 

FORMULA GROWTH,  
LTD.  

 
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 Formula Growth, Ltd. (“Formula Growth” 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:  
 

Summary 
 
1. These proceedings arise out of a violation of Rule 105 of Regulation M of the 

Exchange Act by Formula Growth, a Montréal-based exempt reporting adviser.  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 May 2011, Formula Growth 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 restricted period.  This violation resulted in profits of $42,488.  
 

Respondent 
 
  3. Formula Growth, Ltd. is a corporation organized under the laws of Canada with 
its principal place of business in Montréal and is registered with the Autorité des Marchés 
Financiers in Québec.  Formula Growth is an exempt reporting adviser with less than $150 
million in assets under management in the U.S.   
 
 

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. 
 

 
 

Formula Growth’s Violation of Rule 105 of Regulation M 
 

                                                 
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. 
 



6.  From May 19, 2011 through May 24, 2011, Formula Growth sold short 59,132 
shares of American International Group, Inc. (“AIG”) during the restricted period at prices ranging 
from $29.63 to $30.95 per share.  On May 24, 2011, AIG priced a follow-on offering of its 
common stock at $29 per share.  Formula Growth received an allocation of 25,000 shares in that 
offering.  The difference between Formula Growth’s proceeds received from the restricted period 
short sales of AIG shares and the price paid for the 25,000 shares received in the offering was 
$42,488.  Thus, Formula Growth’s participation in the 2011 AIG offering resulted in total profits 
of $42,488.   
 

Violations 
 
 7. As a result of the conduct described above, Formula Growth violated Rule 105 of 
Regulation M under the Exchange Act.  

 
Formula Growth’s Remedial Efforts & Cooperation 

8. 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 Formula Growth’s Offer. 
 
 Accordingly, it is hereby ORDERED that: 
 
 A. Pursuant to Section 21C of the Exchange Act, Respondent Formula Growth cease 
and desist from committing or causing any violations and any future violations of Rule 105 of 
Regulation M of the Exchange Act;   
 
 B. Formula Growth shall within fourteen (14) days of the entry of this Order, pay 
disgorgement of $42,488, prejudgment interest of $4,255.15, and a civil money penalty in the 
amount of $65,000 (for a total of $111,743.15) 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. 



 
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 
Formula Growth 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