The Securities and Exchange Commission (SEC) recently announced enforcement actions against 23 firms for short selling violations resulting in more than $14.4 million in monetary sanctions. The enforcement actions stem from the agency's increasing focus on preventing firms from improperly participating in public stock offerings after selling short those same stocks. Such violations typically result in illicit profits for the firms. The firms charged in these actions allegedly bought offered shares from an underwriter, broker, or dealer participating in a follow-on public offering after having sold short the same security during the restricted period. Of the 23 firms charged with violating Rule 105 of Regulation M, 22 have elected to settle.
Rule 105 makes it unlawful for a person to purchase equity securities from an underwriter, broker, or dealer participating in a public offering if that person sold short the security that is the subject of the offering during the restricted period defined in the rule, absent an exception. Rule 105 defines the restricted period as the shorter of the period: (1) beginning five business days prior to the pricing of the offered securities and ending with such pricing; or (2) beginning with the initial filing of such registration statement or notification on Form 1-A or Form 1-E and ending with the pricing. The SEC adopted Rule 105 to prevent potentially manipulative activity and claims that its provisions apply regardless of the short seller's intent.
Robert Wayne Pearce, a former SEC Enforcement Attorney, has litigated SEC actions for over 33 years, including, but not limited to, Regulation M, section 16(b) short-swing profits, insider trading, stock market manipulation, and other alleged violations of the Federal securities laws. If you have been contacted by the SEC and believe that you may be subject to an investigation involving a Rule 105 Regulation M violation or any other SEC rule, call Mr. Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce defends companies and individuals who may be the subject of an SEC investigation or enforcement action regarding their alleged involvement in securities laws violations.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. Please see our Instablog profile (left column) for ways to contact us and get answers to any of your questions about this blog post and/or any related matter.