SEC Charges Against Six Firms For Stock Offering-Related Short Sale Violations Results In Over $2.5M in Sanctions

The Securities and Exchange Commission has filed charges against J.P. Morgan Investment Management Inc., War Chest Capital Partners LLC, Harvest Capital Strategies LLC, Omega Advisors, Inc., Auriga Global Investors, Sociedad de Valores, S.A., and, Sabby Management LLC. All six firms settled the enforcement actions, which allege short selling violations ahead of stock offerings. They will collectively pay over $2.5 million in sanctions.

Under rule 105, firms are not allowed to participate in public stock offerings after they’ve sold short the same stock. The prohibition is for five days. To do otherwise could lead to illicit profits for the trader while lowering the offering proceeds for a company via the artificial depression of the market price right before that company puts a price on the stock. The SEC contends that all six firms took part in short selling certain stocks right before buying shares from a broker, underwriter, or dealer that participated in a follow-on public offering.

Per the settlements:

• Auriga Global Investors will pay disgorgement of nearly $437K, a penalty of over $179K, and a prejudgment interest of over $2K.

• War Chest Capital Partners will pay disgorgement of over $169K, prejudgment interest of over $22K, and a penalty of $150K.

• Harvest Capital Strategies will pay over 418K of disgorgement, prejudgment interest of $619, and a $65K penalty.

• Sabby Management will pay disgorgement of over $184K, prejudgment interest of over $2300, and a penalty of over $91,600.

• JPMorgan Investment Management will pay disgorgement of over $662K, prejudgment interest of over $56,700, and a penalty of over $364K.

• Omega Advisors will pay disgorgement of $68K, prejudgment interest of $686K, and a penalty of $65K.

This is not the first time that the SEC has pursued firms over short sale violations involving stock offerings. In an earlier round of enforcement actions in 2013, the SEC brought charges against 23 firms, which lead to over $14.4 million in monetary sanctions. Last year, the regulator brought actions against 19 firms and one trader. That led to over $9 million in sanctions.

War Chest, which had been sanctioned in 2013 and refused to assess its previous trading to determine whether other violations had been committed, is not just subject to even more significant sanctions this time around, but also it is barred from taking part in secondary offerings for a year.

SEC Charges Six Firms for Short Selling Violations in Advance of Stock Offerings, SEC.gov, October 14, 2015