Appaloosa, Carlson Probed On Short Sales

Mar 25 2010 | 12:20pm ET

Hedge funds Appaloosa Management and Carlson Capital are under investigation for allegedly covering short-sales with stocks bought in secondary offerings.

The two firms are among the hedge funds whose trades are getting a look-over from the Securities and Exchange Commission, The Wall Street Journal reports. At issue is an “antimanipulation rule,” Rule 105, which bars investors with a short interest in a stock five days before a stock offering from participating in the stock sale, generally at a reduced price.

Appaloosa’s trading around the time of Wachovia Corp.’s acquisition by Wells Fargo & Co. is being scrutinized. Dallas-based Carlson Capital, which manages the Black Diamond hedge funds, is having trades in connection with four secondary offerings scrutinized.

“Carlson Capital has been cooperating voluntarily and fully with the SEC relating to an inquiry in connection with ‘Rule 105,’ and will continue to do so,” a firm spokesman told the Journal.

A lawyer for Appaloosa, which manages $13 billion, said the firm is also cooperating.

“The total amount of the trades is non-material to [Appaloosa] by any metric, including its balance sheet or its assets under management,” Christopher Clark told HedgeFund.net.


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