In re WHITEBOX ADVISORS
summary
Whitebox Advisors LLC violated Rule 105 of Regulation M by short-selling shares of five companies during restricted periods before follow-on offerings and then purchasing those same shares in the offerings, generating $788,779 in illicit profits, and agreed to pay $1.2 million in disgorgement, interest, and penalties without admitting or denying the allegations.
paragraph
Whitebox Advisors LLC, a Minnesota-based investment firm with over $8.4 billion in assets under management, engaged in five violations of Rule 105 of Regulation M between January 2011 and June 2012 by short-selling equity securities such as AGNC, END, and NLY during the restricted period and subsequently purchasing shares in the same follow-on offerings. These actions generated $788,779 in illicit profits, with the largest single gain of $292,460 coming from a transaction involving Annaly Capital Management (NLY). The SEC imposed a cease-and-desist order, requiring Whitebox to pay $788,779 in disgorgement, $48,553 in prejudgment interest, and a $365,593 civil penalty, totaling $1,202,925, without admitting or denying the findings.
narrative
Whitebox Advisors LLC, a Minnesota-based investment firm registered with the SEC and managing over $8.4 billion in assets, violated Rule 105 of Regulation M on five occasions between January 2011 and June 2012 by selling short shares of companies including American Capital Agency (AGNC), Endeavour International (END), and Annaly Capital Management (NLY) during the restricted period preceding follow-on public offerings. The firm then purchased shares in those same offerings, profiting from the price differential between its short sales and the offering price, resulting in total illicit gains of $788,779, with the largest single profit of $292,460 from an NLY transaction and $40,994.50 from an AGNC transaction. Rule 105 prohibits such conduct regardless of intent, as it undermines market integrity by allowing manipulative arbitrage between short sales and public offerings. Whitebox consented to a cease-and-desist order without admitting or denying the allegations, acknowledging the SEC’s jurisdiction and the factual findings. As part of the settlement, Whitebox agreed to disgorge $788,779 in profits, pay $48,553 in prejudgment interest, and a civil penalty of $365,593, totaling $1,202,925 to the U.S. Treasury. The SEC noted Whitebox’s cooperation and implementation of remedial measures as mitigating factors. This case underscores the SEC’s enforcement of Rule 105 as a prophylactic measure to prevent market manipulation in secondary offerings.
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 whitebox advisors llcSecurities and Exchange Commissionwhitebox advisors llc
Keywords
whiteboxofferingrestricted periodsharesrespondentcommissionshortsecurities exchangeperiodexchangerestrictedwhitebox advisorssold shortpricereceived
Extracted insights
Dollar amounts 19
- $8.40B $8.4 billion ≥$1B
- $1.20M $1,202,925 $1M–$10M
- $1.00M $1,000,000 $1M–$10M
- $789K $788,779 $100K–$1M
- $366K $365,592 $100K–$1M
- $292K $292,460 $100K–$1M
- $213K $212,850 $100K–$1M
- $166K $165,533 $100K–$1M
- $147K $146,784 $100K–$1M
- $128K $128,209 $100K–$1M
- $77K $76,941 $10K–$100K
- $66K $66,066 $10K–$100K
Entities 4
- company cease-and-desist proceedings against whitebox advisors llc
- location delaware
- agency Securities and Exchange Commission
- company whitebox advisors llc
Triples 10
- SEC instituted cease-and-desist proceedings against Whitebox Advisors LLC
- Whitebox Advisors LLC violated Rule 105 of Regulation M
- Whitebox Advisors LLC generated $788,779 in profits from violations
- Whitebox Advisors LLC is incorporated in Delaware
- Whitebox Advisors LLC has principal place of business in Minneapolis, MN
- Whitebox Advisors LLC registered with SEC since January 2006
- Whitebox Advisors LLC manages assets of excess of $8.4 billion
- Whitebox Advisors LLC provides advisory services to eleven foreign private funds and seven domestic private funds
- Whitebox Advisors LLC violated Rule 105 on five occasions from January 2011 through June 2012
- SEC issued Release No. 73113 on September 16, 2014
Text layers
Extracted body text (11,429c)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 73113 / September 16, 2014
ADMINISTRATIVE PROCEEDING
File No. 3-16117
In the Matter of
WHITEBOX ADVISORS
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 Whitebox Advisors LLC (“Whitebox” 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 violations of Rule 105 of Regulation M of the
Exchange Act by Whitebox, a Minnesota-based 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. On five occasions, from January 2011 through June 2012, Whitebox 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
resulted in profits of $788,779.
Respondent
3. Whitebox Advisors LLC is a limited liability company incorporated in Delaware
with its principal place of business in Minneapolis, MN. Whitebox Advisors LLC has been
registered with the SEC since January 2006 and provides advisory services to eleven foreign
private funds and seven domestic private funds. Whitebox Advisors LLC has total assets under
management in excess of $8.4 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.
Whitebox’s Violations of Rule 105 of Regulation M
6. From March 2, 2012 through March 7, 2012, Whitebox sold short 35,000 shares of
American Capital Agency Co. (“AGNC”) during the restricted period at an average price of
$30.5485 per share. On March 7, 2012, AGNC announced the pricing of a follow-on offering of
its common stock at $29.35 per share. Whitebox received an allocation of 50,000 shares in that
3
offering. The difference between Whitebox’s proceeds received from the restricted period short
sales of AGNC shares and the price paid for the 35,000 shares received in the offering was
$39,320.50. Respondent also improperly obtained a benefit of $1,674 by purchasing the remaining
15,000 shares at a discount from AGNC’s market price. Thus, Whitebox’s participation in the
AGNC offering resulted in total profits of $40,994.50.
7. On June 7, 2012, Whitebox sold short 60,000 shares of Endeavour International
Corporation (“END”) during the restricted period at a price of $9.9464 per share. On June 13,
2012, END announced the pricing of a follow-on offering of its common stock at $7.50 per share.
Whitebox received an allocation of 200,000 shares in that offering. The difference between
Whitebox’s proceeds received from the restricted period short sales of END shares and the price
paid for the 60,000 shares received in the offering was $146,784. Respondent also improperly
obtained a benefit of $66,066 by purchasing the remaining 140,000 shares at a discount from
END’s market price. Thus, Whitebox’s participation in the END offering resulted in total profits
of $212,850.
8. On January 3, 2011, Whitebox sold short 20,000 shares of Annaly Capital
Management (“NLY”) during the restricted period at a price of $17.9401 per share. On January 4,
2011, NLY announced the pricing of a follow-on offering of its common stock at $17.20 per share.
Whitebox received an allocation of 350,000 shares in that offering. The difference between
Whitebox’s proceeds received from the restricted period short sales of NLY shares and the price
paid for the 20,000 shares received in the offering was $14,802. Respondent also improperly
obtained a benefit of $62,139 by purchasing the remaining 330,000 shares at a discount from
NLY’s market price. Thus, Whitebox’s participation in the NLY offering resulted in total profits
of $76,941.
9. From February 10, 2011 through February 14, 2011, Whitebox sold short 190,000
shares of Annaly Capital Management (“NLY”) during the restricted period at an average price of
$17.9431 per share. On February 15, 2011, NLY announced the pricing of a follow-on offering of
its common stock at $17.30 per share. Whitebox received an allocation of 500,000 shares in that
offering. The difference between Whitebox’s proceeds received from the restricted period short
sales of NLY shares and the price paid for the 190,000 shares received in the offering was
$128,209. Respondent also improperly obtained a benefit of $37,324 by purchasing the remaining
310,000 shares at a discount from NLY’s market price. Thus, Whitebox’s participation in the
NLY offering resulted in total profits of $165,533.
10. From July 8, 2011 through July 11, 2011, Whitebox sold short 838,200 shares of
Annaly Capital Management (“NLY”) during the restricted period at an average price of $18.5107.
On July 11, 2011, NLY announced the pricing of a follow-on offering of its common stock at
$17.70 per share. Whitebox received an allocation of 350,000 shares in that offering. The
difference between Whitebox’s proceeds from the restricted period short sales of NLY shares and
the price paid for the 350,000 shares received in the offering was $292,460. Thus, Whitebox’s
participation in the NLY offering resulted in total profits of $292,460.
4
11. In total, Whitebox’s violations of Rule 105 resulted in profits of $788,779.
Violation
12. As a result of the conduct described above, Whitebox violated Rule 105 of
Regulation M under the Exchange Act.
Whitebox’s Remedial Efforts & Cooperation
13. 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 Whitebox’s Offer.
Accordingly, it is hereby ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Respondent Whitebox cease and
desist from committing or causing any violations and any future violations of Rule 105 of
Regulation M of the Exchange Act;
B. Whitebox shall within fourteen (14) days of the entry of this Order, pay
disgorgement of $788,779, prejudgment interest of $48,553.49, and a civil money penalty in the
amount of $365,592.83 (for a total of $1,202,925.30) 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
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.
5
Payments by check or money order must be accompanied by a cover letter identifying
Whitebox 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 (10,848c · tika · 95% conf)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 73113 / September 16, 2014
ADMINISTRATIVE PROCEEDING
File No. 3-16117
In the Matter of
WHITEBOX ADVISORS
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 Whitebox Advisors LLC (“Whitebox” 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 violations of Rule 105 of Regulation M of the
Exchange Act by Whitebox, a Minnesota-based 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. On five occasions, from January 2011 through June 2012, Whitebox 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
resulted in profits of $788,779.
Respondent
3. Whitebox Advisors LLC is a limited liability company incorporated in Delaware
with its principal place of business in Minneapolis, MN. Whitebox Advisors LLC has been
registered with the SEC since January 2006 and provides advisory services to eleven foreign
private funds and seven domestic private funds. Whitebox Advisors LLC has total assets under
management in excess of $8.4 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.
Whitebox’s Violations of Rule 105 of Regulation M
6. From March 2, 2012 through March 7, 2012, Whitebox sold short 35,000 shares of
American Capital Agency Co. (“AGNC”) during the restricted period at an average price of
$30.5485 per share. On March 7, 2012, AGNC announced the pricing of a follow-on offering of
its common stock at $29.35 per share. Whitebox received an allocation of 50,000 shares in that
3
offering. The difference between Whitebox’s proceeds received from the restricted period short
sales of AGNC shares and the price paid for the 35,000 shares received in the offering was
$39,320.50. Respondent also improperly obtained a benefit of $1,674 by purchasing the remaining
15,000 shares at a discount from AGNC’s market price. Thus, Whitebox’s participation in the
AGNC offering resulted in total profits of $40,994.50.
7. On June 7, 2012, Whitebox sold short 60,000 shares of Endeavour International
Corporation (“END”) during the restricted period at a price of $9.9464 per share. On June 13,
2012, END announced the pricing of a follow-on offering of its common stock at $7.50 per share.
Whitebox received an allocation of 200,000 shares in that offering. The difference between
Whitebox’s proceeds received from the restricted period short sales of END shares and the price
paid for the 60,000 shares received in the offering was $146,784. Respondent also improperly
obtained a benefit of $66,066 by purchasing the remaining 140,000 shares at a discount from
END’s market price. Thus, Whitebox’s participation in the END offering resulted in total profits
of $212,850.
8. On January 3, 2011, Whitebox sold short 20,000 shares of Annaly Capital
Management (“NLY”) during the restricted period at a price of $17.9401 per share. On January 4,
2011, NLY announced the pricing of a follow-on offering of its common stock at $17.20 per share.
Whitebox received an allocation of 350,000 shares in that offering. The difference between
Whitebox’s proceeds received from the restricted period short sales of NLY shares and the price
paid for the 20,000 shares received in the offering was $14,802. Respondent also improperly
obtained a benefit of $62,139 by purchasing the remaining 330,000 shares at a discount from
NLY’s market price. Thus, Whitebox’s participation in the NLY offering resulted in total profits
of $76,941.
9. From February 10, 2011 through February 14, 2011, Whitebox sold short 190,000
shares of Annaly Capital Management (“NLY”) during the restricted period at an average price of
$17.9431 per share. On February 15, 2011, NLY announced the pricing of a follow-on offering of
its common stock at $17.30 per share. Whitebox received an allocation of 500,000 shares in that
offering. The difference between Whitebox’s proceeds received from the restricted period short
sales of NLY shares and the price paid for the 190,000 shares received in the offering was
$128,209. Respondent also improperly obtained a benefit of $37,324 by purchasing the remaining
310,000 shares at a discount from NLY’s market price. Thus, Whitebox’s participation in the
NLY offering resulted in total profits of $165,533.
10. From July 8, 2011 through July 11, 2011, Whitebox sold short 838,200 shares of
Annaly Capital Management (“NLY”) during the restricted period at an average price of $18.5107.
On July 11, 2011, NLY announced the pricing of a follow-on offering of its common stock at
$17.70 per share. Whitebox received an allocation of 350,000 shares in that offering. The
difference between Whitebox’s proceeds from the restricted period short sales of NLY shares and
the price paid for the 350,000 shares received in the offering was $292,460. Thus, Whitebox’s
participation in the NLY offering resulted in total profits of $292,460.
4
11. In total, Whitebox’s violations of Rule 105 resulted in profits of $788,779.
Violation
12. As a result of the conduct described above, Whitebox violated Rule 105 of
Regulation M under the Exchange Act.
Whitebox’s Remedial Efforts & Cooperation
13. 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 Whitebox’s Offer.
Accordingly, it is hereby ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Respondent Whitebox cease and
desist from committing or causing any violations and any future violations of Rule 105 of
Regulation M of the Exchange Act;
B. Whitebox shall within fourteen (14) days of the entry of this Order, pay
disgorgement of $788,779, prejudgment interest of $48,553.49, and a civil money penalty in the
amount of $365,592.83 (for a total of $1,202,925.30) 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
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.
5
Payments by check or money order must be accompanied by a cover letter identifying
Whitebox 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