Adviser Fined for Short-Selling Violations on Clients' Accounts

An investment adviser settled SEC charges for short-selling violations in clients' accounts. The SEC determined that the adviser purchased stock in registered offerings after the accounts were found to be selling short the same stocks.

According to the Order, the SEC found that the adviser purchased offering shares for certain of its investment advisory clients in a follow-on public offering of stock, despite the clients' accounts having had options exercised against them, causing them to have sold short the relevant stocks during the restricted period pursuant to Rule 105 of Regulation M ("Short selling in connection with a public offering"). Notably, although the exercises of the options had occurred during the restricted period, the sales of the options for the clients' accounts had occurred before the start of the restricted period.

The SEC determined that the actions resulted in $351,726.86 worth of gains to the advisory clients and violated Reg. M.

To settle the charges, the adviser agreed to (i) cease and desist, (ii) disgorgement of $351,726, (iii) prejudgment interest of $29,600 and (iv) a civil money penalty of $140,000.