Securities Law Prof Blog

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

Friday, November 9, 2007

SEC Settles Rule 105 Charges with Two Offshore Firms

The SEC announced that it filed a settled civil action two offshore companies, Armstrong Capital Ltd. and Bay Capital Investment Ltd., and their owner and principal trader Timothy M. Bliss, charging them with violating Rule 105 of Regulation M. Rule 105, as in effect at the time of the conduct alleged in the complaint, prohibited covering a short sale with securities obtained in certain public offerings when the short sale occurred during a specific period (usually five business days) before the pricing of the offering. The complaint alleges that, from January 2004 through June 2006, Armstrong Capital, Bay Capital, and Bliss violated Rule 105 in connection with 57 public offerings by using shares purchased in those offerings to cover short sales made during the restricted period set by Rule 105. The complaint further alleges that in the offerings, the offering price was usually set at a discount to the last reported sale price of the stock before the pricing of the offering. As alleged in the complaint, by short selling just prior to pricing, Armstrong Capital and Bay Capital often sold shares short at prices higher than the price they would later pay for the shares in the offering.

Armstrong Capital, Bay Capital and Bliss agreed to settle the enforcement action and disgorge $1.47 million in trading profits and prejudgment interest, and to pay a $325,000 civil penalty.

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