Andrew L. Evans, a trader living in Canada, has consented to pay over $1 million to resolve charges that he shorted U.S. stocks in companies planning follow-on offerings and then illegally purchased shares in the offerings to generate substantial profits at little to no risk. The Securities and Exchange Commission said that through his firm Maritime Asset Management, Evans violated Rule 105, federal securities laws’ anti-manipulation provision, multiple times.
Under Rule 105, short selling in an equity security is not allowed during the restricted period, which is typically five days leading up to a public offering, nor is buying the security via the offering. By buying the shares at a lower price in the follow-on offerings that could cover his sort sales, Evans allegedly made over $580K in illegal profits.
The SEC said that the short selling violations happened between 12/10 and 5/12. Under the settlement, Evans must pay over $582K in disgorgement, more than $63K in prejudgment interest and a penalty of more than $364K. A court must still approve the settlement.
Evans is resolving this case without denying or admitting to the findings. He is, however, consenting to be permanently enjoined from violating Rule 105 moving forward.
Regulation M’s Rule 105
Rule 105 typically does not allow for the purchase of securities in secondary and follow-on offerings when the buyer has effected short sales in the securities during a specific designated timeframe and before an offering is priced. The rule aims to protect the securities markets’ independent pricing mechanisms so that offering prices are a result of supply or demand rather than artificial means.
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Read the SEC Complaint (PDF)
Merrill Lynch to Settle Short-Selling Case for $11M, Admits to Wrongdoing, Institutional Investor Securities Blog, June 2, 2015