In re D. E. Shaw & Co.
summary
D.E. Shaw & Co., L.P. violated Rule 105 of Regulation M by short-selling five equities during restricted periods before participating in follow-on public offerings, generating $447,794 in illicit profits, and agreed to pay $667,492.37 in disgorgement, interest, and a civil penalty without admitting or denying the findings.
paragraph
D.E. Shaw & Co., L.P., a registered investment adviser with $32 billion in assets under management, engaged in five violations of Rule 105 of Regulation M between May 2010 and March 2012 by short-selling securities like Radian Group, DDR Corp., Kraton, Vical, and Hercules Offshore during restricted periods prior to purchasing shares in their follow-on offerings. These trades yielded $447,794 in improper profits by exploiting the price differential between short sales and offering prices, regardless of intent, as Rule 105 is a prophylactic rule designed to prevent artificial price manipulation. Without admitting or denying the allegations, D.E. Shaw consented to a cease-and-desist order and agreed to pay $447,794 in disgorgement, $18,192 in prejudgment interest, and a $201,506 civil penalty, totaling $667,492.37.
narrative
D.E. Shaw & Co., L.P., a New York-based registered investment adviser managing approximately $32 billion in assets, violated Rule 105 of Regulation M on five occasions between May 2010 and March 2012 by selling short equity securities during restricted periods immediately before participating in follow-on public offerings. The violations involved Radian Group Inc. (RDN), DDR Corp. (DDR), Kraton Performance Polymers Inc. (KRA), Vical, and Hercules Offshore (HERO), with the firm profiting $447,794 by buying shares at offering prices after having sold them short at higher market prices during the restricted window. For example, in the RDN offering, D.E. Shaw shorted 103,560 shares at an average of $14.46 and then purchased 1.25 million shares at $11.00, netting $358,172 in profit from just that transaction. Rule 105 prohibits such conduct irrespective of intent, as its purpose is to ensure offering prices reflect true market supply and demand rather than artificial arbitrage. The SEC found these actions undermined market integrity and issued a cease-and-desist order, which D.E. Shaw consented to without admitting or denying the findings, except as to jurisdiction. To resolve the matter, D.E. Shaw agreed to disgorge $447,794 in illicit profits, pay $18,192 in prejudgment interest, and a $201,506 civil penalty, totaling $667,492.37. The SEC noted the firm’s cooperation and remedial efforts as mitigating factors in determining the penalty amount.
Classified market-manipulation(confidence 100%). EDGAR detection: forms SC 13D/G/13F· recall 53% / precision 9%. detection rule →
Statutes
17 C.F.R. § 242.105SECTION 21C OF THE SECURITIES EXCHANGE ACT
Parties
Securities and Exchange CommissionD. E. Shaw & Co., L.P.
Keywords
shawofferingrestricted periodsharesrespondentcommissionshortexchangeperiodsecurities exchangesold shortrestrictedpriceshort salessecurities
Extracted insights
Dollar amounts 17
- $32.00B $32 billion ≥$1B
- $1.00M $1,000,000 $1M–$10M
- $667K $667,492 $100K–$1M
- $448K $447,794 $100K–$1M
- $448K $447,794 $100K–$1M
- $358K $358,172 $100K–$1M
- $202K $201,506 $100K–$1M
- $81K $81,032 $10K–$100K
- $77K $76,596 $10K–$100K
- $18K $18,192 $10K–$100K
- $4K $4,435 <$10K
- $4K $4,366 <$10K
Entities 2
- company d. e. shaw & co., l.p.
- agency Securities and Exchange Commission
Triples 10
- D. E. Shaw & Co., L.P. violated Rule 105 of Regulation M
- D. E. Shaw & Co., L.P. bought offered shares from underwriter or broker or dealer
- D. E. Shaw & Co., L.P. sold short same security during restricted period
- D. E. Shaw & Co., L.P. generated profits of $447,794
- D. E. Shaw & Co., L.P. is registered as investment adviser since January 1999
- D. E. Shaw & Co., L.P. manages assets of approximately $32 billion as of July 1, 2013
- D. E. Shaw & Co., L.P. is located in New York, New York
- SEC instituted cease-and-desist proceedings against D. E. Shaw & Co., L.P.
- violations occurred from May 2010 through March 2012
- Rule 105 prohibits buying equity security from underwriter after short selling during restricted period
PDF
Text layers
Extracted body text (10,627c)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 70396 / September 16, 2013
ADMINISTRATIVE PROCEEDING
File No. 3-15476
In the Matter of
D. E. Shaw & Co., L.P.,
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 D. E. Shaw & Co., L.P. (“D. E. Shaw” 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 D. E. Shaw, a New York-based registered investment adviser. Rule 105
prohibits buying an equity security made available through a public 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 five occasions, from May 2010 through March 2012, D. E. Shaw bought offered
shares from an underwriter or broker or dealer participating in a follow-on public offering after
having sold short the same security during the restricted period. The violations resulted in profits
of $447,794.
Respondent
3. D. E. Shaw & Co., L.P. is a Delaware limited partnership with its principal place of
business in New York, New York. D. E. Shaw & Co., L.P. has been registered with the
Commission as an investment adviser since January 1999 and, together with its affiliated advisers,
provides advisory services to various domestic and offshore funds, with total assets under
management of approximately $32 billion as of July 1, 2013. The trading described herein refers
to trading on behalf of certain of those funds.
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 goal of Rule 105 is to promote offering prices that are based upon open
market prices determined by supply and demand rather than artificial forces.” Final Rule: Short
Sales, Exchange Act Release No. 50103. Rule 105 is prophylactic and prohibits the conduct
irrespective of the short seller’s intent in effecting the short sale.
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
D. E. Shaw’s Violation of Rule 105 of Regulation M
6. From April 29 through May 4, 2010, D. E. Shaw sold short 103,560 shares of
Radian Group Inc. (“RDN”) during the restricted period at a weighted average price of $14.4586
per share. On May 5, 2010, RDN announced the pricing of a follow-on offering of its common
stock at $11.00 per share. D. E. Shaw received an allocation of 1,250,000 shares in that offering.
The difference between D. E. Shaw’s proceeds from the restricted period short sales of RDN
shares and the price paid for the 103,560 shares received in the offering was $358,172.62. Thus,
D. E. Shaw’s participation in the RDN offering netted total profits of $358,172.62.
7. On March 1, 2011, D. E. Shaw sold short 2,200 shares of DDR Corp. (“DDR”)
during the restricted period at a weighted average price of $14.1005 per share. On March 1, 2011,
DDR announced the pricing of a follow-on offering of its common stock at $13.80 per share. D. E.
Shaw received an allocation of 700,000 shares in that offering. The difference between D. E.
Shaw’s proceeds from the restricted period short sales of DDR shares and the price paid for the
2,200 shares received in the offering was $661.10. Thus, D. E. Shaw’s participation in the DDR
offering netted total profits of $661.10.
8. From March 30 through March 31, 2011, D. E. Shaw sold short 400 shares of
Kraton Performance Polymers Inc. (“KRA”) during the restricted period at a weighted average
price of $ 39.7775 per share. On March 31, 2011, KRA announced the pricing of a follow-on
offering of its common stock at $37.75 per share. D. E. Shaw received an allocation of 100,000
shares in that offering. The difference between D. E. Shaw’s proceeds from the restricted period
short sales of KRA shares and the price paid for the 400 shares received in the offering was
$811.00. Respondent also improperly obtained a benefit of $3,555.72 by purchasing the remaining
99,600 shares at a discount from KRA’s market price. Thus, D. E. Shaw’s participation in the
KRA offering netted total profits of $4,366.72.
9. On January 3, 2012, D. E. Shaw sold short 4,878 shares of Vical Incorporated
(“VICL”) during the restricted period at a weighted average price of $ 4.47 per share. On January
6, 2012, VICL announced the pricing of a follow-on offering of its common stock at $3.75 per
share. D. E. Shaw received an allocation of 50,000 shares in that offering. The difference between
D. E. Shaw’s proceeds from the restricted period short sales of VICL shares and the price paid for
the 4,878 shares received in the offering was $3,512.16. Respondent also improperly obtained a
benefit of $49.63 by purchasing the remaining 45,122 shares at a discount from VICL’s market
price. Thus, D. E. Shaw’s participation in the VICL offering netted total profits of $3,561.79.
10. On March 21, 2012, D. E. Shaw sold short 14,263 shares of Hercules Offshore, Inc.
(“HERO”) during the restricted period at a weighted average price of $ 5.4110 per share. On
March 22, 2012, HERO announced the pricing of a follow-on offering of its common stock at
$5.10 per share. D. E. Shaw received an allocation of 700,000 shares in that offering. The
difference between D. E. Shaw’s proceeds from the restricted period short sales of HERO shares
and the price paid for the 14,263 shares received in the offering was $4,435.79. Respondent also
4
improperly obtained a benefit of $76,596.82 by purchasing the remaining 685,737 shares at a
discount from HERO’s market price. Thus, D. E. Shaw’s participation in the HERO offering
netted total profits of $81,032.61.
11. In total, D. E. Shaw’s violations of Rule 105 resulted in profits to certain funds
advised by D.E. Shaw of $447,794.
Violations
12. As a result of the conduct described above, D. E. Shaw violated Rule 105 of
Regulation M under the Exchange Act.
D. E. Shaw’s Remedial Efforts
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 D. E. Shaw’s Offer.
Accordingly, it is hereby ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Respondent D. E. Shaw cease and
desist from committing or causing any violations and any future violations of Rule 105 of
Regulation M of the Exchange Act;
B. D. E. Shaw shall within fourteen (14) days of the entry of this Order, pay
disgorgement of $447,794 prejudgment interest of $18,192.37, and a civil money penalty in the
amount of $201,506.00 (for a total of $667,492.37) to the United States Treasury. If timely
payment is not made, additional interest shall accrue pursuant to SEC Rule of Practice 600.
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:
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
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 D.
E. Shaw 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.
Elizabeth M. Murphy
Secretary
OCR text (10,812c · tika · 95% conf)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 70396 / September 16, 2013
ADMINISTRATIVE PROCEEDING
File No. 3-15476
In the Matter of
D. E. Shaw & Co., L.P.,
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 D. E. Shaw & Co., L.P. (“D. E. Shaw” 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 D. E. Shaw, a New York-based registered investment adviser. Rule 105
prohibits buying an equity security made available through a public 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 five occasions, from May 2010 through March 2012, D. E. Shaw bought offered
shares from an underwriter or broker or dealer participating in a follow-on public offering after
having sold short the same security during the restricted period. The violations resulted in profits
of $447,794.
Respondent
3. D. E. Shaw & Co., L.P. is a Delaware limited partnership with its principal place of
business in New York, New York. D. E. Shaw & Co., L.P. has been registered with the
Commission as an investment adviser since January 1999 and, together with its affiliated advisers,
provides advisory services to various domestic and offshore funds, with total assets under
management of approximately $32 billion as of July 1, 2013. The trading described herein refers
to trading on behalf of certain of those funds.
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 goal of Rule 105 is to promote offering prices that are based upon open
market prices determined by supply and demand rather than artificial forces.” Final Rule: Short
Sales, Exchange Act Release No. 50103. Rule 105 is prophylactic and prohibits the conduct
irrespective of the short seller’s intent in effecting the short sale.
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
D. E. Shaw’s Violation of Rule 105 of Regulation M
6. From April 29 through May 4, 2010, D. E. Shaw sold short 103,560 shares of
Radian Group Inc. (“RDN”) during the restricted period at a weighted average price of $14.4586
per share. On May 5, 2010, RDN announced the pricing of a follow-on offering of its common
stock at $11.00 per share. D. E. Shaw received an allocation of 1,250,000 shares in that offering.
The difference between D. E. Shaw’s proceeds from the restricted period short sales of RDN
shares and the price paid for the 103,560 shares received in the offering was $358,172.62. Thus,
D. E. Shaw’s participation in the RDN offering netted total profits of $358,172.62.
7. On March 1, 2011, D. E. Shaw sold short 2,200 shares of DDR Corp. (“DDR”)
during the restricted period at a weighted average price of $14.1005 per share. On March 1, 2011,
DDR announced the pricing of a follow-on offering of its common stock at $13.80 per share. D. E.
Shaw received an allocation of 700,000 shares in that offering. The difference between D. E.
Shaw’s proceeds from the restricted period short sales of DDR shares and the price paid for the
2,200 shares received in the offering was $661.10. Thus, D. E. Shaw’s participation in the DDR
offering netted total profits of $661.10.
8. From March 30 through March 31, 2011, D. E. Shaw sold short 400 shares of
Kraton Performance Polymers Inc. (“KRA”) during the restricted period at a weighted average
price of $ 39.7775 per share. On March 31, 2011, KRA announced the pricing of a follow-on
offering of its common stock at $37.75 per share. D. E. Shaw received an allocation of 100,000
shares in that offering. The difference between D. E. Shaw’s proceeds from the restricted period
short sales of KRA shares and the price paid for the 400 shares received in the offering was
$811.00. Respondent also improperly obtained a benefit of $3,555.72 by purchasing the remaining
99,600 shares at a discount from KRA’s market price. Thus, D. E. Shaw’s participation in the
KRA offering netted total profits of $4,366.72.
9. On January 3, 2012, D. E. Shaw sold short 4,878 shares of Vical Incorporated
(“VICL”) during the restricted period at a weighted average price of $ 4.47 per share. On January
6, 2012, VICL announced the pricing of a follow-on offering of its common stock at $3.75 per
share. D. E. Shaw received an allocation of 50,000 shares in that offering. The difference between
D. E. Shaw’s proceeds from the restricted period short sales of VICL shares and the price paid for
the 4,878 shares received in the offering was $3,512.16. Respondent also improperly obtained a
benefit of $49.63 by purchasing the remaining 45,122 shares at a discount from VICL’s market
price. Thus, D. E. Shaw’s participation in the VICL offering netted total profits of $3,561.79.
10. On March 21, 2012, D. E. Shaw sold short 14,263 shares of Hercules Offshore, Inc.
(“HERO”) during the restricted period at a weighted average price of $ 5.4110 per share. On
March 22, 2012, HERO announced the pricing of a follow-on offering of its common stock at
$5.10 per share. D. E. Shaw received an allocation of 700,000 shares in that offering. The
difference between D. E. Shaw’s proceeds from the restricted period short sales of HERO shares
and the price paid for the 14,263 shares received in the offering was $4,435.79. Respondent also
4
improperly obtained a benefit of $76,596.82 by purchasing the remaining 685,737 shares at a
discount from HERO’s market price. Thus, D. E. Shaw’s participation in the HERO offering
netted total profits of $81,032.61.
11. In total, D. E. Shaw’s violations of Rule 105 resulted in profits to certain funds
advised by D.E. Shaw of $447,794.
Violations
12. As a result of the conduct described above, D. E. Shaw violated Rule 105 of
Regulation M under the Exchange Act.
D. E. Shaw’s Remedial Efforts
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 D. E. Shaw’s Offer.
Accordingly, it is hereby ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Respondent D. E. Shaw cease and
desist from committing or causing any violations and any future violations of Rule 105 of
Regulation M of the Exchange Act;
B. D. E. Shaw shall within fourteen (14) days of the entry of this Order, pay
disgorgement of $447,794 prejudgment interest of $18,192.37, and a civil money penalty in the
amount of $201,506.00 (for a total of $667,492.37) to the United States Treasury. If timely
payment is not made, additional interest shall accrue pursuant to SEC Rule of Practice 600.
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:
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
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 D.
E. Shaw 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.
Elizabeth M. Murphy
Secretary