The SEC this week filed the first cases under the new Rule 105 of Regulation M, which was amended to curtail unlawful short-selling practices. According to the press release, “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.” Under this amended rule, the Commission recently charged two California-based investment advisors for “engaging in improper short selling of securities in advance of their participation in a company’s secondary offering.” The two investment advisory firms have both settled the charges with the SEC.
The SEC alleges that AGB Partners and its principals Gregory A. Bied and Andrew J. Goldberger “violated both the pre- and post-amendment Rule 105 to gain illicit profits” by using two separate accounts. One account, containing only the personal funds of Bied and Goldberger, was used for short-selling, while the follow-on offerings used for some of the short position was covered by a separate investment fund that the two managed for outside clients. The SEC found that this “close collaboration with the accounts fell outside the separate accounts exception” and charged AGB and its principals with unlawful short-selling practices.
The SEC connected the other firm, Palmyra Capital Advisors, with the short-selling of shares in Capital One Financial before the organization’s public offering. According to the SEC, Palmyra Capital received the same number of shares from Capital One’s secondary offering less than a week later. The SEC found that Palmyra Capital “violated short selling rules and improperly profited in three of its managed hedge funds.” |
