In re G-2 Trading LLC

 
 
 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 34-70414 / September 16, 2013 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-15495 
 
 
In the Matter of 
 
G-2 Trading LLC,  
 
Respondent. 
 
 
 
 
 
 
CORRECTED ORDER INSTITUTING 
ADMINISTRATIVE AND CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTIONS 15(b) AND 21C OF THE 
SECURITIES EXCHANGE ACT OF 1934 
AND NOTICE OF HEARING 
  
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 
Act”), against G-2 Trading LLC (“G-2” or “Respondent”).  
 
II. 
 
 After an investigation, the Division of Enforcement alleges that: 
 
Summary 
 
1. These proceedings arise out of willful violations of Rule 105 of Regulation M of 
the Exchange Act by G-2, a registered broker-dealer.  Rule 105 prohibits buying an equity security 
that is the subject of an offering, conducted on a firm commitment basis, from an underwriter or 
broker or dealer participating in the offering after having sold short the same security during the 
restricted period as defined therein. 
 
 2. On three occasions, from November 2009 through August 2012, G-2 bought 
offered shares from an underwriter or broker or dealer participating in a follow-on public offering 

 2 
after having sold short the same security during the restricted period.  These violations collectively 
resulted in profits of $13,248. 
 
Respondent 
 
 3. G-2 is a Delaware limited liability company and a registered broker-dealer based in 
New York, New York. 
 
Legal Framework 
 
4. Rule 105 makes it unlawful for a person to purchase equity securities from an 
underwriter, broker, or dealer participating in a public 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 Exchange Act Form 1-A or Form 1-E and ending with pricing.   
 
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.”  Id.  Rule 105 is prophylactic and prohibits the conduct irrespective of the short seller’s 
intent in effecting the short sale.  Id. 
  
G-2’s Willful Violations of Rule 105 of Regulation M  
 
 6.   On August 3, 2012, G-2 sold short 10,000 shares of American International Group, 
Inc. (“AIG”) during the restricted period at a price of $30.8421 per share.  On August 3, 2012, AIG 
announced the pricing of a follow-on offering of its common stock at $30.50 per share.  G-2 
received an allocation of 1,600 shares in that offering.  The difference between G-2’s proceeds 
from the restricted period short sales of AIG shares and the price paid for the 1,600 shares received 
in the offering was $560.  Thus, G-2’s participation in the AIG offering resulted in total profits of 
$560. 
 
 7. On February 24 and February 25, 2010, G-2 sold short a total of 6,000 shares of 
Seabridge Gold, Inc. (“SA”) during the restricted period at an average price of $22.6664 per share.  
On February 25, 2010, SA announced the pricing of a follow-on offering of its common stock at 
$22.90 per share.  G-2 received an allocation of 10,000 shares in that offering.  The offering price 
exceeded the prices at which the firm had sold short.  By purchasing the offered shares despite 
having shorted the stock during the restricted period, G-2 improperly obtained a discount from the 
stock’s market price and avoided losses of $7,074.  G-2 also improperly obtained a benefit of 
$4,716 by purchasing the remaining 4,000 shares in the offering at a discount from SA’s market 
price.  Thus, G-2’s participation in the SA offering resulted in total profits of $11,790. 
 

 3 
 8. On November 6, 2009, G-2 sold short 3,000 shares of Standard Parking Corp. 
(“STAN”) during the restricted period at an average price of $16.8983 per share.  On November 9, 
2009, STAN announced the pricing of a follow-on offering of its common stock at $16 per share.  
G-2 received an allocation of 1,000 shares in that offering.  The difference between G-2’s proceeds 
from the restricted period short sales of STAN shares and the price paid for the 1,000 shares 
received in the offering was $898.  Thus, G-2’s participation in the STAN offering resulted in 
profits of $898. 
 
  9. In total, G-2’s violations of Rule 105 resulted in profits of $13,248. 
 
Violations 
 
 10. As a result of the conduct described above, G-2 willfully violated Rule 105 of 
Regulation M under the Exchange Act.  
 
III. 
 
In view of the allegations made by the Division of Enforcement, the Commission deems it 
necessary  and  appropriate in  the  public  interest that public  administrative  and cease-and-desist 
proceedings be instituted to determine: 
  
A. Whether  the  allegations  set  forth  in  Section  II hereof  are  true  and,  in  connection 
therewith, to afford Respondent an opportunity to establish any defenses to such allegations; and 
 
B. What, if any, remedial action is appropriate in the public interest against Respondent 
pursuant to Section 15(b) of the Exchange Act including, but not limited to, disgorgement and civil 
penalties pursuant to Section 21B of the Exchange Act; 
 
C. Whether,  pursuant  to  Section  21C  of  the  Exchange  Act,  Respondent  should  be 
ordered  to  cease  and  desist  from  committing  or  causing  violations  of  and  any  future  violations  of 
Rule 105 of Regulation M, whether Respondent should be ordered to pay a civil penalty pursuant to 
Section   21B(a)   of   the  Exchange   Act, and   whether   Respondent   should   be   ordered   to   pay 
disgorgement pursuant to 21B(e) and 21C(e) of the Exchange Act. 
 
IV. 
 
IT IS ORDERED that a public hearing for the purpose of taking evidence on the questions 
set forth in Section III hereof shall be convened not earlier than 30 days and not later than 60 days 
from service of this Order at a time and place to be fixed, and before an Administrative Law Judge 
to be designated by further order as provided by Rule 110 of the Commission's Rules of Practice, 17 
C.F.R. § 201.110.  
 
IT  IS  FURTHER  ORDERED  that  Respondent  shall  file  an  Answer  to  the  allegations 
contained in this Order within twenty (20) days after service of this Order, as provided by Rule 220 
of the Commission's Rules of Practice, 17 C.F.R. § 201.220.  

 4 
 
If Respondent fails to file the directed answer, or fails to appear at a hearing after being duly 
notified, the Respondent may be deemed in default and the proceedings may be determined against 
him  upon  consideration  of  this  Order,  the  allegations  of  which  may  be  deemed  to  be  true  as 
provided by Rules 155(a), 220(f), 221(f) and 310 of the Commission's Rules of Practice, 17 C.F.R.  
§§ 201.155(a), 201.220(f), 201.221(f) and 201.310. 
 
This Order shall be served forthwith upon Respondent personally or by certified mail. 
 
IT  IS  FURTHER  ORDERED  that  the  Administrative  Law  Judge  shall  issue  an  initial 
decision no later than 300 days from the date of service of this Order, pursuant to Rule 360(a)(2) of 
the Commission’s Rules of Practice.  
 
In the absence of an appropriate waiver, no officer or employee of the Commission engaged 
in  the  performance of  investigative  or  prosecuting  functions  in  this  or  any  factually  related 
proceeding will be permitted to participate or advise in the decision of this matter, except as witness 
or counsel in proceedings held pursuant to notice.  Since this proceeding is not “rule making” within  
the meaning of Section 551 of the Administrative Procedure Act, it is not deemed subject to the 
provisions of Section 553 delaying the effective date of any final Commission action. 
 
 By the Commission. 
 
 
 
        Elizabeth M. Murphy 
        Secretary 
 
 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 34-70414 / September 16, 2013 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-15495 

 

 

In the Matter of 

 

G-2 Trading LLC,  

 

Respondent. 

 

 

 

 

 

 

CORRECTED ORDER INSTITUTING 

ADMINISTRATIVE AND CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTIONS 15(b) AND 21C OF THE 

SECURITIES EXCHANGE ACT OF 1934 

AND NOTICE OF HEARING 

  

I. 
 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 

Act”), against G-2 Trading LLC (“G-2” or “Respondent”).  

 

II. 
 

 After an investigation, the Division of Enforcement alleges that: 

 

Summary 

 

1. These proceedings arise out of willful violations of Rule 105 of Regulation M of 

the Exchange Act by G-2, a registered broker-dealer.  Rule 105 prohibits buying an equity security 

that is the subject of an offering, conducted on a firm commitment basis, from an underwriter or 

broker or dealer participating in the offering after having sold short the same security during the 

restricted period as defined therein. 

 

 2. On three occasions, from November 2009 through August 2012, G-2 bought 

offered shares from an underwriter or broker or dealer participating in a follow-on public offering 



 2 

after having sold short the same security during the restricted period.  These violations collectively 

resulted in profits of $13,248. 

 

Respondent 

 

 3. G-2 is a Delaware limited liability company and a registered broker-dealer based in 

New York, New York. 

 

Legal Framework 

 

4. Rule 105 makes it unlawful for a person to purchase equity securities from an 

underwriter, broker, or dealer participating in a public 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 Exchange Act Form 1-A or Form 1-E and ending with pricing.   

 

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.”  Id.  Rule 105 is prophylactic and prohibits the conduct irrespective of the short seller’s 

intent in effecting the short sale.  Id. 

  

G-2’s Willful Violations of Rule 105 of Regulation M  
 

 6.   On August 3, 2012, G-2 sold short 10,000 shares of American International Group, 

Inc. (“AIG”) during the restricted period at a price of $30.8421 per share.  On August 3, 2012, AIG 

announced the pricing of a follow-on offering of its common stock at $30.50 per share.  G-2 

received an allocation of 1,600 shares in that offering.  The difference between G-2’s proceeds 

from the restricted period short sales of AIG shares and the price paid for the 1,600 shares received 

in the offering was $560.  Thus, G-2’s participation in the AIG offering resulted in total profits of 

$560. 

 

 7. On February 24 and February 25, 2010, G-2 sold short a total of 6,000 shares of 

Seabridge Gold, Inc. (“SA”) during the restricted period at an average price of $22.6664 per share.  

On February 25, 2010, SA announced the pricing of a follow-on offering of its common stock at 

$22.90 per share.  G-2 received an allocation of 10,000 shares in that offering.  The offering price 

exceeded the prices at which the firm had sold short.  By purchasing the offered shares despite 

having shorted the stock during the restricted period, G-2 improperly obtained a discount from the 

stock’s market price and avoided losses of $7,074.  G-2 also improperly obtained a benefit of 

$4,716 by purchasing the remaining 4,000 shares in the offering at a discount from SA’s market 

price.  Thus, G-2’s participation in the SA offering resulted in total profits of $11,790. 

 



 3 

 8. On November 6, 2009, G-2 sold short 3,000 shares of Standard Parking Corp. 

(“STAN”) during the restricted period at an average price of $16.8983 per share.  On November 9, 

2009, STAN announced the pricing of a follow-on offering of its common stock at $16 per share.  

G-2 received an allocation of 1,000 shares in that offering.  The difference between G-2’s proceeds 

from the restricted period short sales of STAN shares and the price paid for the 1,000 shares 

received in the offering was $898.  Thus, G-2’s participation in the STAN offering resulted in 

profits of $898. 

 

  9. In total, G-2’s violations of Rule 105 resulted in profits of $13,248. 

 

Violations 

 

 10. As a result of the conduct described above, G-2 willfully violated Rule 105 of 

Regulation M under the Exchange Act.  

 

III. 

 

In view of the allegations made by the Division of Enforcement, the Commission deems it 

necessary and appropriate in the public interest that public administrative and cease-and-desist 

proceedings be instituted to determine: 

  

A. Whether the allegations set forth in Section II hereof are true and, in connection 

therewith, to afford Respondent an opportunity to establish any defenses to such allegations; and 

 

B. What, if any, remedial action is appropriate in the public interest against Respondent 

pursuant to Section 15(b) of the Exchange Act including, but not limited to, disgorgement and civil 

penalties pursuant to Section 21B of the Exchange Act; 

 

C. Whether, pursuant to Section 21C of the Exchange Act, Respondent should be 

ordered to cease and desist from committing or causing violations of and any future violations of 

Rule 105 of Regulation M, whether Respondent should be ordered to pay a civil penalty pursuant to 

Section 21B(a) of the Exchange Act, and whether Respondent should be ordered to pay 

disgorgement pursuant to 21B(e) and 21C(e) of the Exchange Act. 

 

IV. 

 

IT IS ORDERED that a public hearing for the purpose of taking evidence on the questions 

set forth in Section III hereof shall be convened not earlier than 30 days and not later than 60 days 

from service of this Order at a time and place to be fixed, and before an Administrative Law Judge 

to be designated by further order as provided by Rule 110 of the Commission's Rules of Practice, 17 

C.F.R. § 201.110.  

 

IT IS FURTHER ORDERED that Respondent shall file an Answer to the allegations 

contained in this Order within twenty (20) days after service of this Order, as provided by Rule 220 

of the Commission's Rules of Practice, 17 C.F.R. § 201.220.  



 4 

 

If Respondent fails to file the directed answer, or fails to appear at a hearing after being duly 

notified, the Respondent may be deemed in default and the proceedings may be determined against 

him upon consideration of this Order, the allegations of which may be deemed to be true as 

provided by Rules 155(a), 220(f), 221(f) and 310 of the Commission's Rules of Practice, 17 C.F.R.  

§§ 201.155(a), 201.220(f), 201.221(f) and 201.310. 

 

This Order shall be served forthwith upon Respondent personally or by certified mail. 

 

IT IS FURTHER ORDERED that the Administrative Law Judge shall issue an initial 

decision no later than 300 days from the date of service of this Order, pursuant to Rule 360(a)(2) of 

the Commission’s Rules of Practice.  

 

In the absence of an appropriate waiver, no officer or employee of the Commission engaged 

in the performance of investigative or prosecuting functions in this or any factually related 

proceeding will be permitted to participate or advise in the decision of this matter, except as witness 

or counsel in proceedings held pursuant to notice.  Since this proceeding is not “rule making” within  

the meaning of Section 551 of the Administrative Procedure Act, it is not deemed subject to the 

provisions of Section 553 delaying the effective date of any final Commission action. 

 

 By the Commission. 

 

 

 

        Elizabeth M. Murphy 

        Secretary