Wednesday, 1 October 2014
Last updated 12 hours ago
Mar 26 2010 | 4:12am ET
Appaloosa Management has denied that it knowingly violated a rule that bars participating in a secondary offering if a firm is selling a stock short.
The Securities and Exchange Commission is investigating the $13 billion Chatham, N.J.-based firm for trades it made in Wells Fargo shares as the bank was acquiring Wachovia Corp. in 2008. In a letter to investors yesterday, Appaloosa said two of its funds shorted more than one million Wells Fargo shares between Oct. 31 and Nov. 5 of that year before buying 125,000 shares in a secondary offering announced on Nov. 5.
The hedge fund said it only learned of the secondary offering after its public announcement—and after it had already shorted the bank’s shares.
“There is no assertion that Appaloosa knowingly acted to manipulate the market for Wells Fargo stock,” it wrote.
The SEC’s Rule 105 bars investors with a short interest in a stock five days before a stock offering from participating in that offering. It is designed to prevent market manipulation.
The firm is cooperating with the probe, Appaloosa lawyer Christopher Clark told Bloomberg News.
“The amount of the stock in question is immaterial on any measure of Appaloosa’s finances, whether it be its balance sheet, income statements or asset under management,” he said.
The SEC is also looking at a series of trades made by Dallas-based Carlson Capital’s Black Diamond hedge funds around four secondary offerings.
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