In re RA CAPITAL
summary
RA Capital Management, LLC violated Rule 105 of Regulation M by short-selling 17 equity securities during restricted periods before follow-on offerings and then purchasing shares in those same offerings, generating $2.65 million in illicit profits, and agreed to a cease-and-desist order without admitting guilt, paying $3.62 million in total penalties and disgorgement.
paragraph
RA Capital Management, LLC, a Boston-based registered investment adviser with over $1.4 billion in assets under management, engaged in 17 violations of Rule 105 of Regulation M between June 2009 and July 2013 by short-selling shares of biotech companies during restricted periods and then purchasing shares in the subsequent follow-on offerings. These actions generated $2,646,395.21 in illicit profits across 10 companies, including HALO, CTIC, VVUS, INSM, KERX, and BGMD. The SEC accepted a settlement in which RA Capital consented to a cease-and-desist order without admitting or denying the findings, agreeing to disgorge $2,646,395.21 in profits, pay $73,394.16 in prejudgment interest, and a $904,570.84 civil penalty, totaling $3,624,360.21.
narrative
RA Capital Management, LLC, a Massachusetts-based registered investment adviser with over $1.4 billion in assets under management, violated Rule 105 of Regulation M on 17 occasions between June 2009 and July 2013 by selling short equity securities during the restricted period prior to follow-on public offerings and then purchasing shares in those same offerings at discounted prices. These transactions, involving companies such as Halozyme Therapeutics (HALO), CTI Biopharma (CTIC), VVUS, INSM, KERX, and BGMD, generated $2,646,395.21 in illicit profits. Rule 105 imposes strict liability, meaning intent is irrelevant—the SEC found the conduct unlawful regardless of RA Capital’s motives. In settlement, RA Capital consented to a cease-and-desist order without admitting or denying the allegations, acknowledging only the SEC’s jurisdiction. As part of the resolution, RA Capital agreed to disgorge all illicit profits of $2,646,395.21, pay $73,394.16 in prejudgment interest, and a civil penalty of $904,570.84, totaling $3,624,360.21 paid to the U.S. Treasury. The SEC emphasized Rule 105’s purpose: to prevent manipulative activity that distorts secondary market pricing in follow-on offerings. RA Capital’s prompt cooperation and remedial actions were noted by the Commission as mitigating factors in the settlement terms.
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 ra capital management, llcoffer of settlement to secra capital management, llcSecurities and Exchange Commission
Keywords
capitalsharesrestricted periodofferingpricereceivedshortsold shortperiodrestrictedcapital soldshort sharesperiod pricepershare
Extracted insights
Dollar amounts 49
- $1.40B $1.4 billion ≥$1B
- $3.62M $3,624,360 $1M–$10M
- $2.65M $2,646,395 $1M–$10M
- $1.00M $1,000,000 $1M–$10M
- $905K $904,570 $100K–$1M
- $634K $634,499 $100K–$1M
- $580K $579,931 $100K–$1M
- $312K $312,125 $100K–$1M
- $308K $308,417 $100K–$1M
- $298K $298,450 $100K–$1M
- $286K $286,437 $100K–$1M
- $256K $255,685 $100K–$1M
Entities 4
- company cease-and-desist proceedings against ra capital management, llc
- agency offer of settlement to sec
- company ra capital management, llc
- agency Securities and Exchange Commission
Triples 10
- RA Capital Management, LLC violated Rule 105 of Regulation M of the Securities Exchange Act of 1934
- RA Capital Management, LLC engaged in 17 violations from June 2009 through July 2013
- RA Capital Management, LLC generated $2,646,395.21 in profits from violations
- RA Capital Management, LLC is registered as investment adviser in Massachusetts
- RA Capital Management, LLC had assets under management of in excess of $1.4 billion as of March 31, 2014
- SEC instituted cease-and-desist proceedings against RA Capital Management, LLC
- SEC issued Release No. 73105 on September 16, 2014
- RA Capital Management, LLC submitted Offer of Settlement to SEC
- RA Capital Management, LLC is located in Boston, Massachusetts
- RA Capital Management, LLC provides advisory services to one domestic fund, one offshore fund, and one separately managed account
PDF
Text layers
Extracted body text (21,220c)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 73105 / September 16, 2014
ADMINISTRATIVE PROCEEDING
File No. 3-16109
In the Matter of
RA 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 RA Capital Management, LLC (“RA 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 RA 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 17 occasions, from June 2009 through July 2013, RA 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 $2,646,395.21.
Respondent
3. RA Capital Management, LLC is a Massachusetts limited liability company with
its principal place of business in Boston, Massachusetts. RA Capital Management, LLC is a
registered investment adviser that provides advisory services to one domestic fund, one offshore
fund, and one separately managed account. As of March 31, 2014, RA Capital Management,
LLC had total assets under management in excess of $1.4 billion.
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.
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
RA Capital’s Violations of Rule 105 of Regulation M
6. On June 17, 2009, RA Capital sold short 100,000 shares of Halozyme Therapeutics,
Inc. (“HALO”) during the restricted period at a price of $7.26 per share. On June 23, 2009, HALO
announced the pricing of a follow-on offering of its common stock at $6.50 per share. RA Capital
received an allocation of 75,000 shares in that offering. The difference between RA Capital’s
proceeds received from the restricted period short sales of HALO shares and the price for the
75,000 shares received in the offering was $56,741.93. Thus, RA Capital’s participation in the
HALO offering netted total profits of $56,741.93.
7. On July 21, 2009, RA Capital sold short 625,000 shares of CTI Biopharma Corp.
(formerly known as Cell Therapeutics) (“CTIC”) during the restricted period at a price of $1.50 per
share. On July 22, 2009, RA Capital sold short 500,000 shares of CTIC during the restricted period
at a price of $1.64 per share. On July 23, 2009, CTIC announced the pricing of a follow-on
offering of its common stock at $1.30 per share. RA Capital received an allocation of 1,250,000
shares in that offering. The difference between RA Capital’s proceeds received from the restricted
period short sales of CTIC shares and the price for the 1,250,000 shares received in the offering was
$298,450.00. Respondent also improperly obtained a benefit of $13,675.00 by purchasing the
remaining 125,000 shares at a discount from CTIC’s market price. Thus, RA Capital’s
participation in the HALO offering netted total profits of $312,125.00.
8. On October 6, 2009, RA Capital sold short 17,000 shares of Sangamo Biosciences,
Inc. (“SGMO”) during the restricted period at a price of $8.11 per share. On October 7, 2009,
SGMO announced the pricing of a follow-on offering of its common stock at $7.20 per share. RA
Capital received an allocation of 217,905 shares in that offering. The difference between RA
Capital’s proceeds received from the restricted period short sales of SGMO shares and the price for
the 217,905 shares received in the offering was $15,445.30. Respondent also improperly obtained
a benefit of $7,754.93 by purchasing the remaining 200,905 shares at a discount from SGMO’s
market price. Thus, RA Capital’s participation in the SGMO offering netted total profits of
$23,200.23.
9. On January 5, 2010, RA Capital sold short 74,138 shares of Synta Pharmaceuticals
Corp. (“SNTA”) during the restricted period at a price of $5.76 per share. On January 6, 2010, RA
Capital sold short 161,278 shares of SNTA during the restricted period at a price of $5.70 per
share. On January 8, 2010, SNTA announced the pricing of a follow-on offering of its common
stock at $4.50 per share. RA Capital received an allocation of 1,111,111 shares in that offering.
The difference between RA Capital’s proceeds received from the restricted period short sales of
SNTA shares and the price for the 1,111,111 shares received in the offering was $286,437.08.
Respondent also improperly obtained a benefit of $21,979.94 by purchasing the remaining 875,695
shares at a discount from SNTA’s market price. Thus, RA Capital’s participation in the SNTA
offering netted total profits of $308,417.02.
10. On January 14, 2010, RA Capital sold short 7,000 shares of Achillion
Pharmaceuticals, Inc. (“ACHN”) during the restricted period at a price of $3.00 per share. On
January 15, 2010, RA Capital sold short 100,000 shares of ACHN during the restricted period at a
price of $2.70 per share. On January 22, 2010, ACHN announced the pricing of a follow-on
4
offering of its common stock at $2.08 per share. RA Capital received an allocation of 100,000
shares in that offering. The difference between RA Capital’s proceeds received from the restricted
period short sales of ACHN shares and the price for the 100,000 shares received in the offering was
$64,007.00. Thus, RA Capital’s participation in the ACHN offering netted total profits of
$64,007.00.
11. On March 25, 2010, RA Capital sold short 25,000 shares of Pernix Sleep, Inc.
(formerly known as Somaxon Pharmaceuticals, Inc.) (“SOMX”) during the restricted period at a price
of $9.36 per share. On March 25, 2010, SOMX announced the pricing of a follow-on offering of
its common stock at $8.25 per share. RA Capital received an allocation of 40,000 shares in that
offering. The difference between RA Capital’s proceeds received from the restricted period short
sales of SOMX shares and the price for the 40,000 shares received in the offering was $27,718.30.
Respondent also improperly obtained a benefit of $15,189.00 by purchasing the remaining 15,000
shares at a discount from SOMX’s market price. Thus, RA Capital’s participation in the SOMX
offering netted total profits of $42,907.30.
12. On May 3, 2010, RA Capital sold short 10,450 shares of ImmunoGen, Inc.
(“IMGN”) during the restricted period at a price of $10.61 per share. On May 6, 2010, IMGN
announced the pricing of a follow-on offering of its common stock at $8.00 per share. RA Capital
received an allocation of 150,000 shares in that offering. The difference between RA Capital’s
proceeds received from the restricted period short sales of IMGN shares and the price for the
150,000 shares received in the offering was $27,293.50. Respondent also improperly obtained a
benefit of $9,908.05 by purchasing the remaining 139,550 shares at a discount from IMGN’s
market price. Thus, RA Capital’s participation in the IMGN offering netted total profits of
$37,201.55.
13. On June 3, 2010, RA Capital sold short 84,732 shares of Clinical Data, Inc.
(“CLDA”) during the restricted period at a price of $16.83 per share. On June 4, 2010, RA Capital
sold short 14,700 shares of CLDA during the restricted period at a price of $16.31 per share. On
June 9, 2010, CLDA announced the pricing of a follow-on offering of its common stock at $14.30
per share. RA Capital received an allocation of 15,000 shares in that offering. The difference
between RA Capital’s proceeds received from the restricted period short sales of CLDA shares and
the price for the 15,000 shares received in the offering was $37,941.72. Thus, RA Capital’s
participation in the CLDA offering netted total profits of $37,941.72.
14. On June 25, 2010, RA Capital sold short 100,000 shares of MELA Sciences, Inc.
(“MELA”) during the restricted period at a price of $9.08 per share. On June 30, 2010, MELA
announced the pricing of a follow-on offering of its common stock at $7.50 per share. RA Capital
received an allocation of 400,000 shares in that offering. The difference between RA Capital’s
proceeds received from the restricted period short sales of MELA shares and the price for the
400,000 shares received in the offering was $157,649.00. Thus, RA Capital’s participation in the
MELA offering netted total profits of $157,649.00.
15. On October 12, 2010, RA Capital sold short 30,000 shares of OncoGenex
Pharmaceuticals, Inc. (“OGXI”) during the restricted period at a price of $18.76 per share. On
October 19, 2010, OGXI announced the pricing of a follow-on offering of its common stock at
5
$15.75 per share. RA Capital received an allocation of 410,000 shares in that offering. The
difference between RA Capital’s proceeds received from the restricted period short sales of OGXI
shares and the price for the 410,000 shares received in the offering was $90,195.75. Respondent
also improperly obtained a benefit of $165,490.00 by purchasing the remaining 380,000 shares at a
discount from OGXI’s market price. Thus, RA Capital’s participation in the OGXI offering netted
total profits of $255,685.75.
16. On October 29, 2010, RA Capital sold short 75,000 shares of Exact Sciences Corp.
(“EXAS”) during the restricted period at a price of $7.35 per share. On November 4, 2010, EXAS
announced the pricing of a follow-on offering of its common stock at $6.00 per share. RA Capital
received an allocation of 600,000 shares in that offering. The difference between RA Capital’s
proceeds received from the restricted period short sales of EXAS shares and the price for the
600,000 shares received in the offering was $101,385.00. Respondent also improperly obtained a
benefit of $141,382.50 by purchasing the remaining 525,000 shares at a discount from EXAS’s
market price. Thus, RA Capital’s participation in the EXAS offering netted total profits of
$242,767.50.
17. On June 20, 2011, RA Capital sold short 22,000 shares of GTx Inc. (“GTXI”) during
the restricted period at a price of $5.91 per share. On June 23, 2011, GTXI announced the pricing
of a follow-on offering of its common stock at $4.75 per share. RA Capital received an allocation
of 725,000 shares in that offering. The difference between RA Capital’s proceeds received from
the restricted period short sales of GTXI shares and the price for the 725,000 shares received in the
offering was $25,549.90. Respondent also improperly obtained a benefit of $11,037.10 by
purchasing the remaining 703,000 shares at a discount from GTXI’s market price. Thus, RA
Capital’s participation in the GTXI offering netted total profits of $36,587.00.
18. On December 28, 2011, RA Capital sold short 14,803 shares of Synageva
BioPharma Corp. (“GEVA”) during the restricted period at a price of $25.52 per share. On January
5, 2012, GEVA announced the pricing of a follow-on offering of its common stock at $25.18 per
share. RA Capital received an allocation of 60,000 shares in that offering. The difference
between RA Capital’s proceeds received from the restricted period short sales of GEVA shares and
the price for the 60,000 shares received in the offering was $4,979.05. Respondent also
improperly obtained a benefit of $123,374.25 by purchasing the remaining 45,197 shares at a
discount from GEVA’s market price. Thus, RA Capital’s participation in the GEVA offering
netted total profits of $128,353.30.
19. On February 24, 2012, RA Capital sold short 70,000 shares of VIVUS, Inc.
(“VVUS”) during the restricted period at a price of $21.44 per share. On February 27, 2012, RA
Capital sold short 50,000 shares of VVUS during the restricted period at a price of $23.10 per
share. On February 29, 2012, VVUS announced the pricing of a follow-on offering of its common
stock at $22.50 per share. RA Capital received an allocation of 300,000 shares in that offering.
The difference between RA Capital’s proceeds received from the restricted period short sales of
VVUS shares and the price for the 300,000 shares received in the offering was $30,200.
Respondent also improperly obtained a benefit of $18,837.00 by purchasing the remaining 230,000
shares at a discount from HALO’s market price. Thus, RA Capital’s participation in the VVUS
offering netted total profits of $49,037.00.
6
20. On January 17, 2013, RA Capital sold short 60,238 shares of BG Medicine, Inc.
(“BGMD”) during the restricted period at a price of $2.23 per share. On January 25, 2013, BGMD
announced the pricing of a follow-on offering of its common stock at $2.00 per share. RA Capital
received an allocation of 150,000 shares in that offering. The difference between RA Capital’s
proceeds received from the restricted period short sales of BGMD shares and the price for the
150,000 shares received in the offering was $13,884.56. Respondent also improperly obtained a
benefit of $6,480.82 by purchasing the remaining 89,762 shares at a discount from BGMD’s market
price. Thus, RA Capital’s participation in the BGMD offering netted total profits of $20,365.38.
21. On January 28, 2013, RA Capital sold short 100,000 shares of Keryx
Biopharmaceuticals Inc. (“KERX”) during the restricted period at a price of $5.00 per share. On
January 30, 2013, RA Capital sold short 36,450 shares of KERX during the restricted period at a
price of $9.34 per share. On January 30, 2013, KERX announced the pricing of a follow-on
offering of its common stock at $8.49 per share. RA Capital received an allocation of 300,000
shares in that offering. The difference between RA Capital’s proceeds received from the restricted
period short sales of KERX shares and the price for the 300,000 shares received in the offering was
$30,967.88. Respondent also improperly obtained a benefit of $207,940.95 by purchasing the
remaining 263,550 shares at a discount from KERX’s market price. Thus, RA Capital’s
participation in the KERX offering netted total profits of $238,908.83.
22. On July 11, 2013, RA Capital sold short 40,526 shares of Insmed Incorporated
(“INSM”) during the restricted period at a price of $11.07 per share. On July 15, 2013, RA Capital
sold short 48,369 shares of INSM during the restricted period at a price of $10.96 per share. On
July 17, 2013, INSM announced the pricing of a follow-on offering of its common stock at $10.40
per share. RA Capital received an allocation of 550,000 shares in that offering. The difference
between RA Capital’s proceeds received from the restricted period short sales of INSM shares and
the price for the 550,000 shares received in the offering was $54,567.94. Respondent also
improperly obtained a benefit of $579,931.76 by purchasing the remaining 461,105 shares at a
discount from INSM’s market price. Thus, RA Capital’s participation in the INSM offering netted
total profits of $634,499.70.
23. In total, RA Capital’s violations of Rule 105 resulted in profits of $2,646,395.21.
Violations
24. As a result of the conduct described above, RA Capital violated Rule 105 of
Regulation M under the Exchange Act.
RA Capital’s Remedial Efforts & Cooperation
25. In determining to accept the Offer, the Commission considered remedial
acts promptly undertaken by Respondent and cooperation afforded to Commission staff.
7
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions
agreed to in Respondent RA Capital’s Offer.
Accordingly, it is hereby ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Respondent RA 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. RA Capital shall within fourteen (14) days of the entry of this Order, pay
disgorgement of $2,646,395.21, prejudgment interest of $73,394.16, and a civil money penalty in
the amount of $904,570.84 (for a total of $3,624,360.21) 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 RA
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.
8
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 Paul Levenson, Director, Boston
Regional Office, 33 Arch Street, 23
rd
Floor, Boston, MA 02110.
By the Commission.
Jill M. Peterson
Assistant Secretary
OCR text (20,577c · tika · 95% conf)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 73105 / September 16, 2014
ADMINISTRATIVE PROCEEDING
File No. 3-16109
In the Matter of
RA 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 RA Capital Management, LLC (“RA 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 RA 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 17 occasions, from June 2009 through July 2013, RA 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 $2,646,395.21.
Respondent
3. RA Capital Management, LLC is a Massachusetts limited liability company with
its principal place of business in Boston, Massachusetts. RA Capital Management, LLC is a
registered investment adviser that provides advisory services to one domestic fund, one offshore
fund, and one separately managed account. As of March 31, 2014, RA Capital Management,
LLC had total assets under management in excess of $1.4 billion.
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.
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
RA Capital’s Violations of Rule 105 of Regulation M
6. On June 17, 2009, RA Capital sold short 100,000 shares of Halozyme Therapeutics,
Inc. (“HALO”) during the restricted period at a price of $7.26 per share. On June 23, 2009, HALO
announced the pricing of a follow-on offering of its common stock at $6.50 per share. RA Capital
received an allocation of 75,000 shares in that offering. The difference between RA Capital’s
proceeds received from the restricted period short sales of HALO shares and the price for the
75,000 shares received in the offering was $56,741.93. Thus, RA Capital’s participation in the
HALO offering netted total profits of $56,741.93.
7. On July 21, 2009, RA Capital sold short 625,000 shares of CTI Biopharma Corp.
(formerly known as Cell Therapeutics) (“CTIC”) during the restricted period at a price of $1.50 per
share. On July 22, 2009, RA Capital sold short 500,000 shares of CTIC during the restricted period
at a price of $1.64 per share. On July 23, 2009, CTIC announced the pricing of a follow-on
offering of its common stock at $1.30 per share. RA Capital received an allocation of 1,250,000
shares in that offering. The difference between RA Capital’s proceeds received from the restricted
period short sales of CTIC shares and the price for the 1,250,000 shares received in the offering was
$298,450.00. Respondent also improperly obtained a benefit of $13,675.00 by purchasing the
remaining 125,000 shares at a discount from CTIC’s market price. Thus, RA Capital’s
participation in the HALO offering netted total profits of $312,125.00.
8. On October 6, 2009, RA Capital sold short 17,000 shares of Sangamo Biosciences,
Inc. (“SGMO”) during the restricted period at a price of $8.11 per share. On October 7, 2009,
SGMO announced the pricing of a follow-on offering of its common stock at $7.20 per share. RA
Capital received an allocation of 217,905 shares in that offering. The difference between RA
Capital’s proceeds received from the restricted period short sales of SGMO shares and the price for
the 217,905 shares received in the offering was $15,445.30. Respondent also improperly obtained
a benefit of $7,754.93 by purchasing the remaining 200,905 shares at a discount from SGMO’s
market price. Thus, RA Capital’s participation in the SGMO offering netted total profits of
$23,200.23.
9. On January 5, 2010, RA Capital sold short 74,138 shares of Synta Pharmaceuticals
Corp. (“SNTA”) during the restricted period at a price of $5.76 per share. On January 6, 2010, RA
Capital sold short 161,278 shares of SNTA during the restricted period at a price of $5.70 per
share. On January 8, 2010, SNTA announced the pricing of a follow-on offering of its common
stock at $4.50 per share. RA Capital received an allocation of 1,111,111 shares in that offering.
The difference between RA Capital’s proceeds received from the restricted period short sales of
SNTA shares and the price for the 1,111,111 shares received in the offering was $286,437.08.
Respondent also improperly obtained a benefit of $21,979.94 by purchasing the remaining 875,695
shares at a discount from SNTA’s market price. Thus, RA Capital’s participation in the SNTA
offering netted total profits of $308,417.02.
10. On January 14, 2010, RA Capital sold short 7,000 shares of Achillion
Pharmaceuticals, Inc. (“ACHN”) during the restricted period at a price of $3.00 per share. On
January 15, 2010, RA Capital sold short 100,000 shares of ACHN during the restricted period at a
price of $2.70 per share. On January 22, 2010, ACHN announced the pricing of a follow-on
4
offering of its common stock at $2.08 per share. RA Capital received an allocation of 100,000
shares in that offering. The difference between RA Capital’s proceeds received from the restricted
period short sales of ACHN shares and the price for the 100,000 shares received in the offering was
$64,007.00. Thus, RA Capital’s participation in the ACHN offering netted total profits of
$64,007.00.
11. On March 25, 2010, RA Capital sold short 25,000 shares of Pernix Sleep, Inc.
(formerly known as Somaxon Pharmaceuticals, Inc.) (“SOMX”) during the restricted period at a price
of $9.36 per share. On March 25, 2010, SOMX announced the pricing of a follow-on offering of
its common stock at $8.25 per share. RA Capital received an allocation of 40,000 shares in that
offering. The difference between RA Capital’s proceeds received from the restricted period short
sales of SOMX shares and the price for the 40,000 shares received in the offering was $27,718.30.
Respondent also improperly obtained a benefit of $15,189.00 by purchasing the remaining 15,000
shares at a discount from SOMX’s market price. Thus, RA Capital’s participation in the SOMX
offering netted total profits of $42,907.30.
12. On May 3, 2010, RA Capital sold short 10,450 shares of ImmunoGen, Inc.
(“IMGN”) during the restricted period at a price of $10.61 per share. On May 6, 2010, IMGN
announced the pricing of a follow-on offering of its common stock at $8.00 per share. RA Capital
received an allocation of 150,000 shares in that offering. The difference between RA Capital’s
proceeds received from the restricted period short sales of IMGN shares and the price for the
150,000 shares received in the offering was $27,293.50. Respondent also improperly obtained a
benefit of $9,908.05 by purchasing the remaining 139,550 shares at a discount from IMGN’s
market price. Thus, RA Capital’s participation in the IMGN offering netted total profits of
$37,201.55.
13. On June 3, 2010, RA Capital sold short 84,732 shares of Clinical Data, Inc.
(“CLDA”) during the restricted period at a price of $16.83 per share. On June 4, 2010, RA Capital
sold short 14,700 shares of CLDA during the restricted period at a price of $16.31 per share. On
June 9, 2010, CLDA announced the pricing of a follow-on offering of its common stock at $14.30
per share. RA Capital received an allocation of 15,000 shares in that offering. The difference
between RA Capital’s proceeds received from the restricted period short sales of CLDA shares and
the price for the 15,000 shares received in the offering was $37,941.72. Thus, RA Capital’s
participation in the CLDA offering netted total profits of $37,941.72.
14. On June 25, 2010, RA Capital sold short 100,000 shares of MELA Sciences, Inc.
(“MELA”) during the restricted period at a price of $9.08 per share. On June 30, 2010, MELA
announced the pricing of a follow-on offering of its common stock at $7.50 per share. RA Capital
received an allocation of 400,000 shares in that offering. The difference between RA Capital’s
proceeds received from the restricted period short sales of MELA shares and the price for the
400,000 shares received in the offering was $157,649.00. Thus, RA Capital’s participation in the
MELA offering netted total profits of $157,649.00.
15. On October 12, 2010, RA Capital sold short 30,000 shares of OncoGenex
Pharmaceuticals, Inc. (“OGXI”) during the restricted period at a price of $18.76 per share. On
October 19, 2010, OGXI announced the pricing of a follow-on offering of its common stock at
5
$15.75 per share. RA Capital received an allocation of 410,000 shares in that offering. The
difference between RA Capital’s proceeds received from the restricted period short sales of OGXI
shares and the price for the 410,000 shares received in the offering was $90,195.75. Respondent
also improperly obtained a benefit of $165,490.00 by purchasing the remaining 380,000 shares at a
discount from OGXI’s market price. Thus, RA Capital’s participation in the OGXI offering netted
total profits of $255,685.75.
16. On October 29, 2010, RA Capital sold short 75,000 shares of Exact Sciences Corp.
(“EXAS”) during the restricted period at a price of $7.35 per share. On November 4, 2010, EXAS
announced the pricing of a follow-on offering of its common stock at $6.00 per share. RA Capital
received an allocation of 600,000 shares in that offering. The difference between RA Capital’s
proceeds received from the restricted period short sales of EXAS shares and the price for the
600,000 shares received in the offering was $101,385.00. Respondent also improperly obtained a
benefit of $141,382.50 by purchasing the remaining 525,000 shares at a discount from EXAS’s
market price. Thus, RA Capital’s participation in the EXAS offering netted total profits of
$242,767.50.
17. On June 20, 2011, RA Capital sold short 22,000 shares of GTx Inc. (“GTXI”) during
the restricted period at a price of $5.91 per share. On June 23, 2011, GTXI announced the pricing
of a follow-on offering of its common stock at $4.75 per share. RA Capital received an allocation
of 725,000 shares in that offering. The difference between RA Capital’s proceeds received from
the restricted period short sales of GTXI shares and the price for the 725,000 shares received in the
offering was $25,549.90. Respondent also improperly obtained a benefit of $11,037.10 by
purchasing the remaining 703,000 shares at a discount from GTXI’s market price. Thus, RA
Capital’s participation in the GTXI offering netted total profits of $36,587.00.
18. On December 28, 2011, RA Capital sold short 14,803 shares of Synageva
BioPharma Corp. (“GEVA”) during the restricted period at a price of $25.52 per share. On January
5, 2012, GEVA announced the pricing of a follow-on offering of its common stock at $25.18 per
share. RA Capital received an allocation of 60,000 shares in that offering. The difference
between RA Capital’s proceeds received from the restricted period short sales of GEVA shares and
the price for the 60,000 shares received in the offering was $4,979.05. Respondent also
improperly obtained a benefit of $123,374.25 by purchasing the remaining 45,197 shares at a
discount from GEVA’s market price. Thus, RA Capital’s participation in the GEVA offering
netted total profits of $128,353.30.
19. On February 24, 2012, RA Capital sold short 70,000 shares of VIVUS, Inc.
(“VVUS”) during the restricted period at a price of $21.44 per share. On February 27, 2012, RA
Capital sold short 50,000 shares of VVUS during the restricted period at a price of $23.10 per
share. On February 29, 2012, VVUS announced the pricing of a follow-on offering of its common
stock at $22.50 per share. RA Capital received an allocation of 300,000 shares in that offering.
The difference between RA Capital’s proceeds received from the restricted period short sales of
VVUS shares and the price for the 300,000 shares received in the offering was $30,200.
Respondent also improperly obtained a benefit of $18,837.00 by purchasing the remaining 230,000
shares at a discount from HALO’s market price. Thus, RA Capital’s participation in the VVUS
offering netted total profits of $49,037.00.
6
20. On January 17, 2013, RA Capital sold short 60,238 shares of BG Medicine, Inc.
(“BGMD”) during the restricted period at a price of $2.23 per share. On January 25, 2013, BGMD
announced the pricing of a follow-on offering of its common stock at $2.00 per share. RA Capital
received an allocation of 150,000 shares in that offering. The difference between RA Capital’s
proceeds received from the restricted period short sales of BGMD shares and the price for the
150,000 shares received in the offering was $13,884.56. Respondent also improperly obtained a
benefit of $6,480.82 by purchasing the remaining 89,762 shares at a discount from BGMD’s market
price. Thus, RA Capital’s participation in the BGMD offering netted total profits of $20,365.38.
21. On January 28, 2013, RA Capital sold short 100,000 shares of Keryx
Biopharmaceuticals Inc. (“KERX”) during the restricted period at a price of $5.00 per share. On
January 30, 2013, RA Capital sold short 36,450 shares of KERX during the restricted period at a
price of $9.34 per share. On January 30, 2013, KERX announced the pricing of a follow-on
offering of its common stock at $8.49 per share. RA Capital received an allocation of 300,000
shares in that offering. The difference between RA Capital’s proceeds received from the restricted
period short sales of KERX shares and the price for the 300,000 shares received in the offering was
$30,967.88. Respondent also improperly obtained a benefit of $207,940.95 by purchasing the
remaining 263,550 shares at a discount from KERX’s market price. Thus, RA Capital’s
participation in the KERX offering netted total profits of $238,908.83.
22. On July 11, 2013, RA Capital sold short 40,526 shares of Insmed Incorporated
(“INSM”) during the restricted period at a price of $11.07 per share. On July 15, 2013, RA Capital
sold short 48,369 shares of INSM during the restricted period at a price of $10.96 per share. On
July 17, 2013, INSM announced the pricing of a follow-on offering of its common stock at $10.40
per share. RA Capital received an allocation of 550,000 shares in that offering. The difference
between RA Capital’s proceeds received from the restricted period short sales of INSM shares and
the price for the 550,000 shares received in the offering was $54,567.94. Respondent also
improperly obtained a benefit of $579,931.76 by purchasing the remaining 461,105 shares at a
discount from INSM’s market price. Thus, RA Capital’s participation in the INSM offering netted
total profits of $634,499.70.
23. In total, RA Capital’s violations of Rule 105 resulted in profits of $2,646,395.21.
Violations
24. As a result of the conduct described above, RA Capital violated Rule 105 of
Regulation M under the Exchange Act.
RA Capital’s Remedial Efforts & Cooperation
25. In determining to accept the Offer, the Commission considered remedial
acts promptly undertaken by Respondent and cooperation afforded to Commission staff.
7
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions
agreed to in Respondent RA Capital’s Offer.
Accordingly, it is hereby ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Respondent RA 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. RA Capital shall within fourteen (14) days of the entry of this Order, pay
disgorgement of $2,646,395.21, prejudgment interest of $73,394.16, and a civil money penalty in
the amount of $904,570.84 (for a total of $3,624,360.21) 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 RA
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.
8
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 Paul Levenson, Director, Boston
Regional Office, 33 Arch Street, 23rd Floor, Boston, MA 02110.
By the Commission.
Jill M. Peterson
Assistant Secretary