2013-01-01 SEC Press press_release 68 KB 6,316 chars

SEC Charges 23 Firms With Short Selling Violations in Crackdown on Potential Manipulation in Advance of Stock Offerings

Release
2013-182
Caption
Securities and Exchange Commission v. Andrew Bowden, et al.
Source PDF JSON
summary

The SEC charged 23 firms with violating Rule 105 by short-selling stocks before public offerings and buying shares in those offerings, resulting in 22 settlements totaling $14.4 million in penalties, disgorgement, and interest, while one firm, G-2 Trading LLC, faces litigation for $13,000 in illicit profits.

paragraph

The SEC enforced Rule 105 of Regulation M against 23 firms for short-selling equities during the five-business-day restricted period before public offerings and then purchasing those same shares in the offerings, generating illicit profits. Twenty-two firms settled, collectively paying $14.4 million in disgorgement, prejudgment interest, and penalties, with JGP Global paying the largest total of $3.18 million and Deerfield Management paying over $1.8 million in combined sanctions. One firm, G-2 Trading LLC, is undergoing a litigated administrative proceeding for $13,000 in profits, as the SEC emphasized strict liability regardless of intent to preserve fair pricing in public offerings.

narrative

The SEC announced enforcement actions against 23 firms for violating Rule 105 of Regulation M, which prohibits short-selling a security during the five-business-day restricted period before a public offering and then purchasing shares in that same offering, a practice that artificially depresses prices and undermines market integrity. Twenty-two of the firms settled, paying a combined $14.4 million in disgorgement, prejudgment interest, and civil penalties, with JGP Global paying the highest total of $3.18 million ($2.5M disgorgement + $129K interest + $514K penalty) and Deerfield Management paying over $1.89 million in total sanctions. Other significant settlements included Manikay Partners ($2.55M total), D.E. Shaw ($667K total), and Pan Capital ($662K total), while several firms paid the minimum $65,000 penalty alongside smaller disgorgement amounts. One firm, G-2 Trading LLC, is being pursued in a litigated administrative proceeding for $13,000 in illicit profits, with the SEC seeking full disgorgement, interest, and penalties. The SEC stressed that Rule 105 imposes strict liability—intent is irrelevant—and that the rule exists to ensure offering prices reflect genuine supply and demand. This enforcement campaign was coordinated with a risk alert from the SEC’s National Examination Program to reinforce compliance industry-wide and deter future violations. The agency highlighted this as part of a streamlined enforcement initiative designed to maximize deterrence while conserving resources.

Enriched metadata

Scheme
market-manipulation (97%)
Outcome
charged
Disgorgement
$2,537,114
Civil penalty
$609,482
Victim loss
$14,400,000
Classified market-manipulation(confidence 97%). EDGAR detection: forms SC 13D/G/13F· recall 53% / precision 9%. detection rule →
Parties
andrew bowdenandrew j. ceresneyblackthorn investment groupclaritas investments ltd.credentia groupdeerfield management companyd.e. shaw & co.g-2 trading llcsec division of enforcementsec national exam programsec rule 105 of regulation mSecurities and Exchange Commission
Keywords
prejudgment interestdisgorgement prejudgmentinterest penaltypayinterestdisgorgementprejudgmentagreedpenaltysecfirmscapitalpartners agreedenforcementshort

Exhibits & Attached Documents (24)

Extracted insights

Dollar amounts 50
  • $14.40M $14.4 million $10M–$100M
  • $2.54M $2,537,114 $1M–$10M
  • $1.66M $1,657,000 $1M–$10M
  • $1.27M $1,273,707 $1M–$10M
  • $680K $679,950 $100K–$1M
  • $666K $665,674 $100K–$1M
  • $609K $609,482 $100K–$1M
  • $514K $514,000 $100K–$1M
  • $448K $447,794 $100K–$1M
  • $425K $424,593 $100K–$1M
  • $347K $346,568 $100K–$1M
  • $272K $272,118 $100K–$1M
Entities 12
  • person andrew bowden
  • person andrew j. ceresney
  • company blackthorn investment group
  • company claritas investments ltd.
  • company credentia group
  • company deerfield management company
  • company d.e. shaw & co.
  • company g-2 trading llc
  • agency sec division of enforcement
  • agency sec national exam program
  • agency sec rule 105 of regulation m
  • agency Securities and Exchange Commission
Triples 14
  • SEC announced enforcement actions against 23 firms for short selling violations
  • 22 of 23 firms charged settled enforcement actions resulting in $14.4 million in monetary sanctions
  • SEC Rule 105 of Regulation M prohibits short sale of equity security during restricted period before public offering
  • G-2 Trading LLC violated Rule 105 resulting in profits of more than $13,000
  • Blackthorn Investment Group agreed to pay $244,378.24 disgorgement, $15,829.74 prejudgment interest, $260,000.00 penalty
  • Claritas Investments Ltd. agreed to pay $73,883.00 disgorgement, $5,936.67 prejudgment interest, $65,000.00 penalty
  • Credentia Group agreed to pay $4,091.00 disgorgement, $113.38 prejudgment interest, $65,000.00 penalty
  • D.E. Shaw & Co. agreed to pay $447,794.00 disgorgement, $18,192.37 prejudgment interest, $201,506.00 penalty
  • Deerfield Management Company agreed to pay $1,273,707.00 disgorgement, $19,035.00 prejudgment interest, $609,482.00 penalty
  • Hudson Bay Capital Management agreed to pay $665,674.96 disgorgement, $11,661.31 prejudgment interest, $272,118.00 penalty
  • JGP Global Gestão de Recursos agreed to pay $2,537,114.00 disgorgement, $129,310.00 prejudgment interest, $514,000.00 penalty
  • M.S. Junior, Swiss Capital Holdings, Michael A. Stango agreed to collectively pay $247,039.00 disgorgement, $15,565.77 prejudgment interest, penalty amount
  • Andrew J. Ceresney is Co-Director of SEC Division of Enforcement
  • Andrew Bowden is Director of SEC National Exam Program
PDF (from attached: pdf)
By the Office of Compliance Inspections and Examinations1 · Source
Text layers
Extracted body text (6,316c) 
The Securities and Exchange Commission today announced enforcement actions against 23 firms for short selling violations as the agency increases its focus on preventing firms from improperly participating in public stock offerings after selling short those same stocks. Such violations typically result in illicit profits for the firms. The enforcement actions are being settled by 22 of the 23 firms charged, resulting in more than $14.4 million in monetary sanctions. The SEC’s Rule 105 of Regulation M prohibits the short sale of an equity security during a restricted period – generally five business days before a public offering – and the purchase of that same security through the offering. The rule applies regardless of the trader’s intent, and promotes offering prices that are set by natural forces of supply and demand rather than manipulative activity. The rule therefore helps prevent short selling that can reduce offering proceeds received by companies by artificially depressing the market price shortly before the company prices its public offering. The firms charged in these cases allegedly bought offered shares from an underwriter, broker, or dealer participating in a follow-on public offering after having sold short the same security during the restricted period. “The benchmark of an effective enforcement program is zero tolerance for any securities law violations, including violations that do not require manipulative intent,” said Andrew J. Ceresney, Co-Director of the SEC’s Division of Enforcement. “Through this new program of streamlined investigations and resolutions of Rule 105 violations, we are sending the clear message that firms must pay the price for violations while also conserving agency resources.” The SEC’s National Examination Program simultaneously has issued a risk alert to highlight risks to firms from non-compliance with Rule 105. The risk alert highlights observations by SEC examiners focusing on Rule 105 compliance issues as well as corrective actions that some firms proactively have taken to remedy Rule 105 concerns. “This coordination between the enforcement and examination programs reaffirms that market participants must be in compliance with Rule 105 to preserve and protect the independent pricing mechanisms of the securities markets,” said Andrew Bowden, Director of the SEC’s National Exam Program. In a litigated administrative proceeding against G-2 Trading LLC, the SEC’s Division of Enforcement is alleging that the firm violated Rule 105 in connection with transactions in the securities of three companies, resulting in profits of more than $13,000. The Enforcement Division is seeking full disgorgement of the trading profits, prejudgment interest, penalties, and other relief as appropriate and in the public interest. The SEC charged the following firms in this series of settled enforcement actions: Blackthorn Investment Group – Agreed to pay disgorgement of $244,378.24, prejudgment interest of $15,829.74, and a penalty of $260,000.00. Claritas Investments Ltd. – Agreed to pay disgorgement of $73,883.00, prejudgment interest of $5,936.67, and a penalty of $65,000.00. Credentia Group – Agreed to pay disgorgement of $4,091.00, prejudgment interest of $113.38, and a penalty of $65,000.00. D.E. Shaw & Co. – Agreed to pay disgorgement of $447,794.00, prejudgment interest of $18,192.37, and a penalty of $201,506.00. Deerfield Management Company – Agreed to pay disgorgement of $1,273,707.00, prejudgment interest of $19,035.00, and a penalty of $609,482.00. Hudson Bay Capital Management – Agreed to pay disgorgement of $665,674.96, prejudgment interest of $11,661.31, and a penalty of $272,118.00. JGP Global Gestão de Recursos – Agreed to pay disgorgement of $2,537,114.00, prejudgment interest of $129,310.00, and a penalty of $514,000.00. M.S. Junior, Swiss Capital Holdings, and Michael A. Stango – Agreed to collectively pay disgorgement of $247,039.00, prejudgment interest of $15,565.77, and a penalty of $165,332.00. Manikay Partners – Agreed to pay disgorgement of $1,657,000.00, prejudgment interest of $214,841.31, and a penalty of $679,950.00. Meru Capital Group – Agreed to pay disgorgement of $262,616.00, prejudgment interest of $4,600.51, and a penalty of $131,296.98.00. Merus Capital Partners – Agreed to pay disgorgement of $8,402.00, prejudgment interest of $63.65, and a penalty of $65,000.00. Ontario Teachers’ Pension Plan Board – Agreed to pay disgorgement of $144,898.00, prejudgment interest of $11,642.90, and a penalty of $68,295. Pan Capital AB – Agreed to pay disgorgement of $424,593.00, prejudgment interest of $17,249.80, and a penalty of $220,655.00. PEAK6 Capital Management – Agreed to pay disgorgement of $58,321.00, prejudgment interest of $8,896.89, and a penalty of $65,000.00. Philadelphia Financial Management of San Francisco – Agreed to pay disgorgement of $137,524.38, prejudgment interest of $16,919.26, and a penalty of $65,000.00. Polo Capital International Gestão de Recursos a/k/a Polo Capital Management – Agreed to pay disgorgement of $191,833.00, prejudgment interest of $14,887.51, and a penalty of $76,000.00. Soundpost Partners – Agreed to pay disgorgement of $45,135.00, prejudgment interest of $3,180.85, and a penalty of $65,000.00. Southpoint Capital Advisors – Agreed to pay disgorgement of $346,568.00, prejudgment interest of $17,695.76, and a penalty of $170,494.00. Talkot Capital – Agreed to pay disgorgement of $17,640.00, prejudgment interest of $1,897.68, and a penalty of $65,000.00. Vollero Beach Capital Partners – Agreed to pay disgorgement of $594,292, prejudgment interest of $55.171, and a penalty of $214,964. War Chest Capital Partners – Agreed to pay disgorgement of $187,036.17, prejudgment interest of $10,533.18, and a penalty of $130,000.00. Western Standard – Agreed to pay disgorgement of $44,980.30, prejudgment interest of $1,827.40, and a penalty of $65,000.00. The SEC’s investigations were conducted by Conway T. Dodge, Anita B. Bandy, Lauren B. Poper, Christina M. Adams, Allen A. Flood, Kevin J. Gershfeld, Wendy Kong, Mary S. Brady, Ian S. Karpel, Kimberly L. Frederick, and J. Lee Robinson. The SEC’s litigation will be led by James A. Kidney. The SEC appreciates the ongoing assistance of the Financial Industry Regulatory Authority.
OCR text (6,316c · plain-text · 99% conf) 
The Securities and Exchange Commission today announced enforcement actions against 23 firms for short selling violations as the agency increases its focus on preventing firms from improperly participating in public stock offerings after selling short those same stocks. Such violations typically result in illicit profits for the firms. The enforcement actions are being settled by 22 of the 23 firms charged, resulting in more than $14.4 million in monetary sanctions. The SEC’s Rule 105 of Regulation M prohibits the short sale of an equity security during a restricted period – generally five business days before a public offering – and the purchase of that same security through the offering. The rule applies regardless of the trader’s intent, and promotes offering prices that are set by natural forces of supply and demand rather than manipulative activity. The rule therefore helps prevent short selling that can reduce offering proceeds received by companies by artificially depressing the market price shortly before the company prices its public offering. The firms charged in these cases allegedly bought offered shares from an underwriter, broker, or dealer participating in a follow-on public offering after having sold short the same security during the restricted period. “The benchmark of an effective enforcement program is zero tolerance for any securities law violations, including violations that do not require manipulative intent,” said Andrew J. Ceresney, Co-Director of the SEC’s Division of Enforcement. “Through this new program of streamlined investigations and resolutions of Rule 105 violations, we are sending the clear message that firms must pay the price for violations while also conserving agency resources.” The SEC’s National Examination Program simultaneously has issued a risk alert to highlight risks to firms from non-compliance with Rule 105. The risk alert highlights observations by SEC examiners focusing on Rule 105 compliance issues as well as corrective actions that some firms proactively have taken to remedy Rule 105 concerns. “This coordination between the enforcement and examination programs reaffirms that market participants must be in compliance with Rule 105 to preserve and protect the independent pricing mechanisms of the securities markets,” said Andrew Bowden, Director of the SEC’s National Exam Program. In a litigated administrative proceeding against G-2 Trading LLC, the SEC’s Division of Enforcement is alleging that the firm violated Rule 105 in connection with transactions in the securities of three companies, resulting in profits of more than $13,000. The Enforcement Division is seeking full disgorgement of the trading profits, prejudgment interest, penalties, and other relief as appropriate and in the public interest. The SEC charged the following firms in this series of settled enforcement actions: Blackthorn Investment Group – Agreed to pay disgorgement of $244,378.24, prejudgment interest of $15,829.74, and a penalty of $260,000.00. Claritas Investments Ltd. – Agreed to pay disgorgement of $73,883.00, prejudgment interest of $5,936.67, and a penalty of $65,000.00. Credentia Group – Agreed to pay disgorgement of $4,091.00, prejudgment interest of $113.38, and a penalty of $65,000.00. D.E. Shaw & Co. – Agreed to pay disgorgement of $447,794.00, prejudgment interest of $18,192.37, and a penalty of $201,506.00. Deerfield Management Company – Agreed to pay disgorgement of $1,273,707.00, prejudgment interest of $19,035.00, and a penalty of $609,482.00. Hudson Bay Capital Management – Agreed to pay disgorgement of $665,674.96, prejudgment interest of $11,661.31, and a penalty of $272,118.00. JGP Global Gestão de Recursos – Agreed to pay disgorgement of $2,537,114.00, prejudgment interest of $129,310.00, and a penalty of $514,000.00. M.S. Junior, Swiss Capital Holdings, and Michael A. Stango – Agreed to collectively pay disgorgement of $247,039.00, prejudgment interest of $15,565.77, and a penalty of $165,332.00. Manikay Partners – Agreed to pay disgorgement of $1,657,000.00, prejudgment interest of $214,841.31, and a penalty of $679,950.00. Meru Capital Group – Agreed to pay disgorgement of $262,616.00, prejudgment interest of $4,600.51, and a penalty of $131,296.98.00. Merus Capital Partners – Agreed to pay disgorgement of $8,402.00, prejudgment interest of $63.65, and a penalty of $65,000.00. Ontario Teachers’ Pension Plan Board – Agreed to pay disgorgement of $144,898.00, prejudgment interest of $11,642.90, and a penalty of $68,295. Pan Capital AB – Agreed to pay disgorgement of $424,593.00, prejudgment interest of $17,249.80, and a penalty of $220,655.00. PEAK6 Capital Management – Agreed to pay disgorgement of $58,321.00, prejudgment interest of $8,896.89, and a penalty of $65,000.00. Philadelphia Financial Management of San Francisco – Agreed to pay disgorgement of $137,524.38, prejudgment interest of $16,919.26, and a penalty of $65,000.00. Polo Capital International Gestão de Recursos a/k/a Polo Capital Management – Agreed to pay disgorgement of $191,833.00, prejudgment interest of $14,887.51, and a penalty of $76,000.00. Soundpost Partners – Agreed to pay disgorgement of $45,135.00, prejudgment interest of $3,180.85, and a penalty of $65,000.00. Southpoint Capital Advisors – Agreed to pay disgorgement of $346,568.00, prejudgment interest of $17,695.76, and a penalty of $170,494.00. Talkot Capital – Agreed to pay disgorgement of $17,640.00, prejudgment interest of $1,897.68, and a penalty of $65,000.00. Vollero Beach Capital Partners – Agreed to pay disgorgement of $594,292, prejudgment interest of $55.171, and a penalty of $214,964. War Chest Capital Partners – Agreed to pay disgorgement of $187,036.17, prejudgment interest of $10,533.18, and a penalty of $130,000.00. Western Standard – Agreed to pay disgorgement of $44,980.30, prejudgment interest of $1,827.40, and a penalty of $65,000.00. The SEC’s investigations were conducted by Conway T. Dodge, Anita B. Bandy, Lauren B. Poper, Christina M. Adams, Allen A. Flood, Kevin J. Gershfeld, Wendy Kong, Mary S. Brady, Ian S. Karpel, Kimberly L. Frederick, and J. Lee Robinson. The SEC’s litigation will be led by James A. Kidney. The SEC appreciates the ongoing assistance of the Financial Industry Regulatory Authority.

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