Monday, November 5, 2007
The SEC has brought a number of actions recently in which it alleges Securities Act section 5 violations for short-selling securities prior to purchasing the same securities in a PIPES offering. Today it filed a settled action against New Jersey-based hedge fund TCMP3 Partners, L.P., its general partner TCMP3 Capital, LLC, its investment manager Titan Capital Management, LLC, and portfolio managers Walter M. Schenker and Steven E. Slawson in the U.S. District Court for the District of Columbia. The defendants agreed to settle the Commission's charge that they violated of Section 5 in connection with 26 unregistered "PIPEs" (Private Investment in Public Equity) offerings. The Commission alleges in its complaint that the defendants typically, after agreeing to invest in a PIPE offering, sold short the issuer's stock. The Commission's complaint further alleges that, once the Commission declared the resale registration statement for a PIPE effective, defendants used some or all of the PIPE shares to close out pre-effective date short positions by journaling PIPE shares to their short account.
However, a federal district court recently dismissed similar charges in SEC v. Mangan (W.D.N.C. Oct. 24, 2007), holding that no sale of unregistered securities occurred as a matter of law. The SEC has a number of similar cases pending in other jurisdictions.