Short Seller Found Liable for False Statements

The SEC obtained a final judgment against a hedge firm adviser for making false statements with regard to a drug company that the hedge fund had shorted.

Before the U.S. District Court for the District of Massachusetts, the adviser claimed that a representative of the drug company told the adviser, among other things, that the drug company's most profitable drug was "going away." As a result of the false statements, the Court found that the adviser violated, among other provisions, Rule 10b-5 ("Untrue statement or omission of a material fact") of the Exchange Act.

The District Court entered final judgment against the adviser ordering payment of a civil penalty of $160,000.