The Securities and Exchange Commission today announced that investment advisory firm Weiss Asset Management LP has agreed to pay approximately $6.9 million to settle charges that it violated the federal securities laws when it unlawfully purchased stock in seven public offerings after selling short those same stocks.
The SEC’s order finds that, on seven occasions between December 2020 and February 2021, Weiss Asset Management violated Rule 105, which prohibits short selling an equity security during a restricted period (generally five business days before a covered public offering) and then purchasing the same security through the offering, absent an exception. The rule applies regardless of the trader’s intent and promotes offering prices that are set by natural forces of supply and demand rather than potentially manipulative activity.
According to the order, Weiss Asset Management’s violations occurred because it repeatedly miscalculated the restricted period and dismissed a number of red flags raised by its internal controls that suggested possible violations of Rule 105. The order finds that Weiss Asset Management improperly benefited by participating in offerings covered by Rule 105, resulting in ill-gotten gains totaling over $6.5 million. The order also highlights the significant remedial efforts undertaken by Weiss Asset Management and the cooperation it provided in the investigation, including self-reporting the violations to the staff after conducting a review of its trading records, segregating the ill-gotten profits, and updating and revising its compliance and training efforts.
“Holding violators accountable for Rule 105 violations protects the integrity of our markets by deterring short selling practices that interfere with offering prices,” said D. Mark Cave, Associate Director in the Division of Enforcement. “This settlement credits Weiss Asset Management’s cooperation during the investigation, and we encourage other companies to be forthcoming in their cooperation and comprehensive in their remediation.”
Weiss Asset Management has agreed to disgorge profits of $6,508,793 and to pay interest of $190,211 and a penalty of $200,000. Without admitting or denying the findings in the SEC’s order, Weiss Asset Management has agreed to cease and desist from violating Rule 105 in the future.
The SEC’s investigation was conducted by Lauren B. Poper and Wendy Kong. It was supervised by Sharan K.S. Custer, Carolyn M. Welshhans, and Mr. Cave.