SEC Fines Two Hedge Funds For ‘Shorting Into The Deal’

Jan 27 2010 | 3:42am ET

Two Los Angeles-based hedge funds have settled charges they illegally shorted stocks before participating in secondary offerings.

AGB Partners and Palmyra Capital Advisors are the first firms charged by the Securities and Exchange Commission under a revised rule barring so-called “shorting into the deal,” which forbids participants in secondary offerings from shorting the shares five days before the pricing of an offering.

“Rule 105 protects the pricing integrity that is essential to the capital raising process,” Marc Fagel of the SEC’s San Francisco office said. “By engaging in prohibited trading, these firms illicitly profited at the expense of public companies and their shareholders.”

Neither AGB nor Palmyra admitted or denied the charges. The latter agreed to pay more than $330,000 in disgorgement and penalties, while the former—along with its principals, Gregory Bied and Andrew Goldberger—will pay more than $50,000. Palmyra, AGB, Bied and Goldberger were all censured.

AGB, Bied and Goldberger argued that their trading fell under a loophole in Rule 105, designed to allow brokerages to both short a stock and buy it in a secondary offering on behalf of two different clients. But the SEC found that Goldberger’s and Bied’s “close collaboration with the accounts” mean the loophole didn’t apply to AGB.


In Depth

Debunking Conventional Investment Wisdom

Feb 8 2017 | 3:22pm ET

Due diligence in the hedge fund world has long involved some combination of the...

Lifestyle

'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

The Future of Private Equity: New Opportunities, New Challenges

Feb 3 2017 | 6:41pm ET

The private equity industry’s astonishing rebound since the financial crisis has...

 

From the current issue of