In re MIDWOOD CAPITAL
summary
Midwood Capital Management LLC violated Rule 105 of Regulation M by short-selling PMFG Inc. shares during restricted periods before two follow-on offerings in 2010 and 2012, then purchasing those shares at discounted offering prices to generate $72,699 in illicit profits, resulting in a SEC-ordered cease-and-desist, $72,699 in disgorgement, $5,248.19 in interest, and a $65,000 civil penalty.
paragraph
Midwood Capital Management LLC, a Massachusetts-based investment adviser, violated Rule 105 of Regulation M by selling short PMFG Inc. shares during the restricted periods preceding two follow-on public offerings in February 2010 and February 2012, then purchasing shares in those offerings at discounted prices, yielding $72,699 in illicit profits. The SEC found that Rule 105 prohibits such conduct regardless of intent, as it distorts offering pricing and undermines market integrity. Midwood consented to a cease-and-desist order without admitting or denying the allegations, agreed to disgorge $72,699 in profits, pay $5,248.19 in prejudgment interest, and a $65,000 civil penalty, totaling $142,947.19, with the SEC noting its cooperation and remedial actions as mitigating factors.
narrative
Midwood Capital Management LLC, a Massachusetts-based registered investment adviser, violated Rule 105 of Regulation M by engaging in prohibited short sales of PMFG Inc. shares during restricted periods prior to two follow-on public offerings in February 2010 and February 2012. In the first instance, Midwood short-sold 390 shares at $14.33 in February 2010 and later purchased 10,000 shares in the offering at $11.50, realizing $10,568 in illicit profits through the price differential and discounted acquisition. In the second, it short-sold 7,100 shares at an average of $23.99 between February 9–13, 2012, then purchased 10,000 shares in the $16.00 offering, generating $62,131 in illicit gains, bringing total illicit profits to $72,699. Rule 105 prohibits such conduct irrespective of intent, as it manipulates pricing dynamics in public offerings, and the SEC found Midwood’s actions clearly violated this prophylactic rule. Midwood consented to a cease-and-desist order without admitting or denying the findings, but admitted to the SEC’s jurisdiction, and agreed to disgorge $72,699 in profits, pay $5,248.19 in prejudgment interest, and a $65,000 civil penalty, totaling $142,947.19. The SEC acknowledged Midwood’s cooperation and remedial actions as mitigating factors in determining the penalty, and required payment via certified check or money order to the SEC’s Enterprise Services Center in Oklahoma City, with a copy to the Division of Enforcement.
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
Securities and Exchange CommissionMIDWOOD CAPITAL MANAGEMENT LLC
Keywords
midwood capitalmidwoodcapitalcommissionrespondentsecurities exchangerestricted periodofferingexchangeshortsecuritiessharesorderproceedingspmfg
Extracted insights
Dollar amounts 12
- $1.00M $1,000,000 $1M–$10M
- $143K $142,947 $100K–$1M
- $73K $72,699 $10K–$100K
- $65K $65,000 $10K–$100K
- $62K $62,131 $10K–$100K
- $59K $58,709 $10K–$100K
- $11K $10,568 $10K–$100K
- $9K $9,463 <$10K
- $5K $5,248 <$10K
- $3K $3,422 <$10K
- $1K $1,103 <$10K
- $145 $145 <$10K
Entities 4
- company cease-and-desist proceedings against midwood capital management llc
- company midwood capital management llc
- agency sec since october 2013
- agency Securities and Exchange Commission
Triples 11
- Midwood Capital Management LLC violated Rule 105 of Regulation M of the Securities Exchange Act of 1934
- Midwood Capital Management LLC sold short equity securities during Rule 105 restricted period
- Midwood Capital Management LLC purchased offering shares from underwriter or broker-dealer in follow-on public offering
- Midwood Capital Management LLC generated $72,699 in profits from violations
- Midwood Capital Management LLC is based in Boston, Massachusetts
- Midwood Capital Management LLC registered with SEC since October 2013
- Midwood Capital Management LLC had assets under management of excess of $145 million as of December 31, 2013
- Midwood Capital Management LLC provided advisory services to Midwood Capital Partners L.P. and Midwood Capital Partners Q.P.
- SEC instituted cease-and-desist proceedings against Midwood Capital Management LLC
- SEC issued Order on September 16, 2014
- Violations occurred during February 2010 through February 2012
PDF
Text layers
Extracted body text (8,916c)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 73104 / September 16, 2014
ADMINISTRATIVE PROCEEDING
File No. 3-16108
In the Matter of
MIDWOOD 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 Midwood Capital Management LLC (“Midwood
Capital” 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.
2
III.
On the basis of this Order and Respondent’s Offer, the Commission finds
1
that:
Summary
1. These proceedings arise out of violations of Rule 105 of Regulation M of the
Exchange Act by Midwood Capital, a Massachusetts-based registered investment 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. On two occasions, from February 2010 through February 2012, Midwood Capital
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. These
violations collectively resulted in profits of $72,699.
Respondent
3. Midwood Capital Management LLC is a Delaware limited liability company with
its principal place of business in Boston, Massachusetts. Midwood Capital has been registered
with the Commission since October 2013. At the time of the violations, Midwood Capital was
exempt from registration, and it provided advisory services to two domestic funds, Midwood
Capital Partners L.P. and Midwood Capital Partners Q.P. (which closed in 2011). As of
December 31, 2013, Midwood Capital had total assets under management in excess of $145
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
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.
3
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
.
Midwood Capital’s Violations of Rule 105 of Regulation M
6. On February 19, 2010, Midwood Capital sold short 390 shares of PMFG Inc.
(“PMFG”) during the restricted period at a price of $14.33 per share. On February 26, 2010,
PMFG priced a follow-on offering of its common stock at $11.50 per share. Midwood Capital
received an allocation of 10,000 shares in that offering. The difference between Midwood
Capital’s proceeds received from the restricted period short sales of PMFG shares and the price
paid for the 390 shares received in the offering was $1,103.70. Respondent also improperly
obtained a benefit of $9,463.93 by purchasing the remaining 9,610 shares at a discount from
PMFG’s market price. Thus, Midwood Capital’s participation in the 2010 PMFG offering resulted
in total profits of $10,568.
7. From February 9, 2012 through February 13, 2012, Midwood Capital sold short
7,100 shares of PMFG Inc. (“PMFG”) during the restricted period at an average price of $23.99
per share. On February 16, 2012, PMFG priced a follow-on offering of its common stock at
$16.00 per share. Midwood Capital received an allocation of 10,000 shares in that offering. The
difference between Midwood Capital’s proceeds received from the restricted period short sales of
PMFG shares and the price paid for the 7,100 shares received in the offering was $58,709.04.
Respondent also improperly obtained a benefit of $3,422 by purchasing the remaining 2,900 shares
at a discount from PMFG’s market price. Thus, Midwood Capital’s participation in the 2012
PMFG offering resulted in total profits of $62,131.
8. In total, Midwood Capital’s violations of Rule 105 resulted in profits of $72,699.
Violations
9. As a result of the conduct described above, Midwood Capital violated Rule 105 of
Regulation M under the Exchange Act.
Midwood Capital’s Remedial Efforts & Cooperation
10. 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 Midwood Capital’s Offer.
Accordingly, it is hereby ORDERED that:
4
A. Pursuant to Section 21C of the Exchange Act, Respondent Midwood Capital cease
and desist from committing or causing any violations and any future violations of Rule 105 of
Regulation M of the Exchange Act;
B. Midwood Capital shall within fourteen (14) days of the entry of this Order, pay
disgorgement of $72,699, prejudgment interest of $5,248.19, and a civil money penalty in the
amount of $65,000 (for a total of $142,947.19) 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:
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
Midwood Capital 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
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. OCR text (8,901c · tika · 95% conf)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 73104 / September 16, 2014
ADMINISTRATIVE PROCEEDING
File No. 3-16108
In the Matter of
MIDWOOD 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 Midwood Capital Management LLC (“Midwood
Capital” 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.
2
III.
On the basis of this Order and Respondent’s Offer, the Commission finds1 that:
Summary
1. These proceedings arise out of violations of Rule 105 of Regulation M of the
Exchange Act by Midwood Capital, a Massachusetts-based registered investment 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. On two occasions, from February 2010 through February 2012, Midwood Capital
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. These
violations collectively resulted in profits of $72,699.
Respondent
3. Midwood Capital Management LLC is a Delaware limited liability company with
its principal place of business in Boston, Massachusetts. Midwood Capital has been registered
with the Commission since October 2013. At the time of the violations, Midwood Capital was
exempt from registration, and it provided advisory services to two domestic funds, Midwood
Capital Partners L.P. and Midwood Capital Partners Q.P. (which closed in 2011). As of
December 31, 2013, Midwood Capital had total assets under management in excess of $145
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
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.
3
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.
Midwood Capital’s Violations of Rule 105 of Regulation M
6. On February 19, 2010, Midwood Capital sold short 390 shares of PMFG Inc.
(“PMFG”) during the restricted period at a price of $14.33 per share. On February 26, 2010,
PMFG priced a follow-on offering of its common stock at $11.50 per share. Midwood Capital
received an allocation of 10,000 shares in that offering. The difference between Midwood
Capital’s proceeds received from the restricted period short sales of PMFG shares and the price
paid for the 390 shares received in the offering was $1,103.70. Respondent also improperly
obtained a benefit of $9,463.93 by purchasing the remaining 9,610 shares at a discount from
PMFG’s market price. Thus, Midwood Capital’s participation in the 2010 PMFG offering resulted
in total profits of $10,568.
7. From February 9, 2012 through February 13, 2012, Midwood Capital sold short
7,100 shares of PMFG Inc. (“PMFG”) during the restricted period at an average price of $23.99
per share. On February 16, 2012, PMFG priced a follow-on offering of its common stock at
$16.00 per share. Midwood Capital received an allocation of 10,000 shares in that offering. The
difference between Midwood Capital’s proceeds received from the restricted period short sales of
PMFG shares and the price paid for the 7,100 shares received in the offering was $58,709.04.
Respondent also improperly obtained a benefit of $3,422 by purchasing the remaining 2,900 shares
at a discount from PMFG’s market price. Thus, Midwood Capital’s participation in the 2012
PMFG offering resulted in total profits of $62,131.
8. In total, Midwood Capital’s violations of Rule 105 resulted in profits of $72,699.
Violations
9. As a result of the conduct described above, Midwood Capital violated Rule 105 of
Regulation M under the Exchange Act.
Midwood Capital’s Remedial Efforts & Cooperation
10. 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 Midwood Capital’s Offer.
Accordingly, it is hereby ORDERED that:
4
A. Pursuant to Section 21C of the Exchange Act, Respondent Midwood Capital cease
and desist from committing or causing any violations and any future violations of Rule 105 of
Regulation M of the Exchange Act;
B. Midwood Capital shall within fourteen (14) days of the entry of this Order, pay
disgorgement of $72,699, prejudgment interest of $5,248.19, and a civil money penalty in the
amount of $65,000 (for a total of $142,947.19) 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:
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
Midwood Capital 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
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.