SEC Fines New Jersey Hedge Fund For Illegal PIPE Trading

Nov 6 2007 | 12:20pm ET

The Securities and Exchange Commission has reached a settlement with New Jersey-based hedge fund TCMP3 Partners and portfolio managers Walter Schenker and Steven Slawson in connection with 26 illegal unregistered securities offerings or private investment in public equities.

From mid-2003 through 2004, Schenker and Slawson allegedly locked-in approximately $887,000 in ill-gotten gains from illegal PIPEs trades. Typically, after agreeing to invest in a PIPE transaction, Schenker and Slawson, on behalf of TCMP3, sold short the issuer's stock. Later, once the Commission declared the resale registration statement effective, they used the PIPE shares to close out the short positions.

For example, in April 2004 TCMP3 invested $155,000 in the Indus International PIPE offering and received 50,000 restricted Indus shares at $3.10 per share at a discount of approximately 7% from Indus's then-current market price of approximately $3.33 per share. TCMP3 sold short all 50,000 of its restricted shares, garnering proceeds of $167,000.

Once the Commission declared the resale registration statement effective, Schenker and Slawsonc marked the freely tradable PIPE shares to TCMP3's short account to close out the 50,000 short positions. TCMP3's profit was therefore locked in at the moment it executed its short sales: the $167,000 short sale proceeds minus the $155,000 investment, for a net profit of $12,000.

Schenker and Slawson, without admitting or denying the allegations in the complaint, have agreed to pay a total of $1,1 million in disgorgement, prejudgment interest, and civil penalties.


In Depth

Q&A: Brevan Howard’s Charlotte Valeur Talks Strategy

Sep 18 2014 | 11:18am ET

Charlotte Valeur chairs the board of Brevan Howard Credit Catalysts, an LSE listed...

Lifestyle

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.