Friday, May 20, 2005
3 HFs Get SEC Action on Illegal Shorts
SEC sues and fines 3 hedge funds
Agency claims illegal short sales before share offerings
By Alistair Barr, MarketWatch
Last Update: 11:57 AM ET May 19, 2005
SAN FRANCISCO (MarketWatch) - The Securities and Exchange Commission sued and fined three hedge funds for illegally short-selling shares of several companies before secondary offerings.
Galleon Management LP, Oaktree Capital Management LLC and DB Investment Managers Inc., a unit of Deutsche Bank, were sued for breaking an anti-manipulation rule and agreed to pay a total of almost $2.4 million in disgorged profits, penalties and interest, the SEC said in a statement Thursday.
Deutsche Bank (DB: news, chart, profile) shares declined 2.5% to $77.60 in late morning trading Thursday.
In a short sale traders sell borrowed securities, hoping to buy them back later at a lower price. They then return the securities to the lender at the original price, pocketing the difference.
Short-selling is a legal and important part of securities markets. However, when short sales undermine the integrity of capital-raising efforts such as secondary, or follow-on, share offerings, they can be illegal.
A short sale is illegal when it's covered with securities obtained in a follow-on share sale if the short trade occurred five days before the pricing of that offering, the SEC said.
Enforcing this "is an important way to protect the integrity of the public offering process and to discourage activities that could unfairly influence the market for an offered security," Peter Bresnan, an associate director in the SEC's Division of Enforcement, said.
Shareholders of the company issuing more shares suffer from this type of illegal short-selling because it can artificially depress prices before an offering, Bersnan added.
Companies are also short-changed by the practice because it may cut the valuation of a follow-on offering, ultimately reducing "an issuer's proceeds from the deal by millions of dollars," the SEC said.
Galleon, Oaktree and DB Investment Managers illegally sold stock short before secondary share sales by 22 companies, the SEC alleged.
The three hedge funds made $1,040,882, $169,773 and $15,585 respectively from the trades, the agency added.
Galleon and Oaktree also created "sham" transactions to make it look like they were trading within the rules, the SEC claimed.
The funds built up large short positions within the restricted period, purchased shares in a follow-on offering and then "engaged in further transactions or trading practices" to make it look like the deal complied with the rules, the agency explained.
The three funds didn't admit or deny the allegations.
Agency claims illegal short sales before share offerings
By Alistair Barr, MarketWatch
Last Update: 11:57 AM ET May 19, 2005
SAN FRANCISCO (MarketWatch) - The Securities and Exchange Commission sued and fined three hedge funds for illegally short-selling shares of several companies before secondary offerings.
Galleon Management LP, Oaktree Capital Management LLC and DB Investment Managers Inc., a unit of Deutsche Bank, were sued for breaking an anti-manipulation rule and agreed to pay a total of almost $2.4 million in disgorged profits, penalties and interest, the SEC said in a statement Thursday.
Deutsche Bank (DB: news, chart, profile) shares declined 2.5% to $77.60 in late morning trading Thursday.
In a short sale traders sell borrowed securities, hoping to buy them back later at a lower price. They then return the securities to the lender at the original price, pocketing the difference.
Short-selling is a legal and important part of securities markets. However, when short sales undermine the integrity of capital-raising efforts such as secondary, or follow-on, share offerings, they can be illegal.
A short sale is illegal when it's covered with securities obtained in a follow-on share sale if the short trade occurred five days before the pricing of that offering, the SEC said.
Enforcing this "is an important way to protect the integrity of the public offering process and to discourage activities that could unfairly influence the market for an offered security," Peter Bresnan, an associate director in the SEC's Division of Enforcement, said.
Shareholders of the company issuing more shares suffer from this type of illegal short-selling because it can artificially depress prices before an offering, Bersnan added.
Companies are also short-changed by the practice because it may cut the valuation of a follow-on offering, ultimately reducing "an issuer's proceeds from the deal by millions of dollars," the SEC said.
Galleon, Oaktree and DB Investment Managers illegally sold stock short before secondary share sales by 22 companies, the SEC alleged.
The three hedge funds made $1,040,882, $169,773 and $15,585 respectively from the trades, the agency added.
Galleon and Oaktree also created "sham" transactions to make it look like they were trading within the rules, the SEC claimed.
The funds built up large short positions within the restricted period, purchased shares in a follow-on offering and then "engaged in further transactions or trading practices" to make it look like the deal complied with the rules, the agency explained.
The three funds didn't admit or deny the allegations.
# posted by Tom @ 5:16 PM 
