Exclusive Online Only ContentSEC Charges Two Firms with Abusive Short-Selling
January 27, 2010
The Securities and Exchange Commission (SEC) said Tuesday it has charged two California investment advisers for improper short selling of securities in advance of their participation in a company's secondary offering.
The cases are the first to be filed under the SEC's amended Rule 105 of Regulation M, which is designed to prohibit manipulative short selling ahead of follow-on securities offerings.
The SEC charged Los Angeles-based AGB Partners LLC and principals Gregory A. Bied and Andrew J. Goldberger for making “thousands of dollars in improper profits” by shorting in advance of their purchase of stock in a secondary offering.
In the other case, the SEC charged Los Angeles-based Palmyra Capital Advisors LLC, finding that the firm violated short selling rules and improperly profited in three of its managed hedge funds.
In settling the SEC's charges without admitting or denying guilt, AGB Partners, Bied and Goldberger consented to be censured and to pay more than $50,000 in disgorgement and penalties.
Palmyra Capital consented to be censured and pay more than $330,000 in disgorgement and penalties.
Rule 105 is aimed at preventing abusive short selling and market manipulation by ensuring that offering prices are set by supply and demand for the securities in an offering, rather than by manipulative activity. “Short selling ahead of offerings can reduce the proceeds received by public companies and their shareholders by artificially depressing the market price shortly before the company prices its offering,” the SEC said in a release.
The SEC amended Rule 105 in 2007 to prevent the trading practice known as "shorting into the deal." The revised rule generally prohibits the purchase of offering shares by any person who sold short the same securities within five business days before the pricing of the offering.
