SEC Charges 6 Firms With Rule 105 Violations

These were focused on violations of Rule 105 of Regulation M. This rule in particular is intended to preserve the independent pricing mechanisms of the securities markets and prevent stock price manipulation. It prohibits firms from participating in public stock offerings after selling short those same stocks.

In the report, the SEC detailed its enforcement of Rule 105:

Through its Rule 105 Initiative, which was first announced in 2013 as an effort to address violations of the rule in an expedited and streamlined way, the Division of Enforcement has taken action on every Rule 105 violation over a de minimis amount that has come to its attention—promoting a message of zero tolerance for these offenses.

As a result of this enforcement and based on the available information, the SEC has seen a dramatic decrease in Rule 105 violations since the initiative began. In the first fiscal year after the initiative was announced, Rule 105 violations, decreased by approximately 90% over the previous six years. Rule 105 violations in fiscal year 2015 were similarly lower than before the initiative.

Andrew J. Ceresney, director of the SEC’s Division of Enforcement, commented on the violations:

This highly successful program of streamlined investigations and resolutions of Rule 105 violations has clearly had an important deterrent impact on the market while expending a fraction of the resources that we have dedicated in the past. We will continue to target important violations that we see repeatedly with multiple actions that send important messages of deterrence.

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The six settlements and their respective penalties are as follows:

• Auriga Global Investors, Sociedad de Valores, S.A. – The Spain-based firm agreed to pay disgorgement of $436,940.52, prejudgment interest of $2,184.70, and a penalty of $179,277.28.
• Harvest Capital Strategies LLC – The California-based firm agreed to pay disgorgement of $18,835, prejudgment interest of $619.28, and a penalty of $65,000.
• J.P. Morgan Investment Management Inc. – The New York-based firm agreed to pay disgorgement of $662,763, prejudgment interest of $56,758.40, and a penalty of $364,689.
• Omega Advisors, Inc. – The New York-based firm agreed to pay disgorgement of $68,340, prejudgment interest of $686.58, and a penalty of $65,000.
• Sabby Management LLC – New Jersey-based firm agreed to pay disgorgement of $184,747.10, prejudgment interest of $2,331.51, and a penalty of $91,669.95.
• War Chest Capital Partners LLC – The New York-based firm agreed to pay disgorgement of $179,516, prejudgment interest of $22,302.02, and a penalty of $150,000.