Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, October 15, 2007

SEC Charges Hedge Fund with Rule 105 Violations

The SEC today charged a New York hedge fund, its adviser, and its Managing Director with illegal trading in connection with at least eighteen public offerings. The Complaint alleges that Colonial Fund LLC, Colonial Investment Management LLC, and Cary G. Brody violated Rule 105 of Regulation M when they used shares purchased in at least eighteen registered public offerings to cover short sales that they made during a restricted period. The Defendants realized profits in excess of $1.48 million from the illegal trades.  The Complaint also alleges that the Defendants often engaged in sham market trades after covering Colonial Fund's restricted period short positions.

The Commission seeks an injunction prohibiting each Defendant from further violating Rule 105 of Regulation M. The Complaint also seeks full disgorgement and prejudgment interest from all Defendants, on a joint and several basis, and a civil penalty from Brody

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