Hedge Fund Fontana Rapped For ‘Shorting Into The Deal’

Jan 10 2011 | 4:35am ET

Hedge fund Fontana Capital illegally sold short shares of three financial companies two-and-a-half years ago.

The Boston-based firm, founded by SAC Capital Advisors veteran Forrest Fontana, violated Rule 105, which bars participants in secondary offerings from shorting shares of the company five days before the offering’s pricing. The hedge fund made more than $1 million in illegal profits, according to an SEC administrative cease and desist order.

Fontana’s lawyer, Lisa Wood, told Reuters that the firm does not deny that it broke Rule 105, but said that the violations were “isolated, inadvertent, technical.” She added that two sides disagreed “over the measure of damages.”

According to the SEC, Fontana, which effectively shut its doors last year, illegally shorted shares of Merrill Lynch, XL Capital and Wells Fargo in 2008.

With Fontana contesting the charges, the hedge fund will now face a hearing within 60 days.


In Depth

Royalties: The Alternative Assets of the Music Industry

Jul 8 2016 | 7:01pm ET

Recent market volatility has investors seeking greater insight into alternative...

Lifestyle

Vortic: Making Great American Watches Again

Jul 25 2016 | 6:29pm ET

If you are compelled by stories of entrepreneurial vision & drive, or simply...

Guest Contributor

MPI: Like Stellar Returns? Better Understand the Risks First

Jul 22 2016 | 8:44pm ET

When the press reports extraordinarily strong relative or risk-adjusted returns...