January 26, 2010
SEC Settles Two Cases Alleging Illegal Short Selling in Advance of Secondary Offerings
The SEC separately charged two California investment advisory firms for engaging in improper short selling of securities in advance of their participation in a company's secondary offering. These mark the first cases 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, 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.
In one case, the SEC charged Los Angeles-based AGB Partners LLC and its principals Gregory A. Bied and Andrew J. Goldberger, finding that they netted 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. Both firms have agreed to settle the SEC's charges.
In settling the SEC's charges without admitting or denying the Commission's findings, AGB Partners, Bied and Goldberger consented to be censured and 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.
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