An investment advisory firm agreed to settle SEC charges of illegal short selling in advance of stock offerings.
In an Order, the SEC alleged that Millennium Management, LLC ("Millennium") violated Rule 105 ("Short Selling in Connection with a Public Offering") of Regulation M of the Exchange Act by short-selling equity securities during a restricted period and then purchasing the same securities through a lesser-priced follow-on offering. According to the SEC, Millennium engaged in misconduct related to transactions in four separate securities between February and November 2012. None of the conduct at issue was covered by exemptions from Rule 105.
The SEC claimed that Millennium generated illicit profits of $286,889 as a result of the prohibited short selling. Millennium agreed to pay $286,889 in disgorgement, $51,820.11 in interest and a $300,000 penalty for a total of $638,709.11.
Commentary / Steven Lofchie
The SEC has technology that is on the lookout for Regulation M short selling violations. Any adviser that is not attending to this issue needs to pay more attention, particularly given the reality that it is the adviser and not the client who disgorges.
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