SEC Prosecutes 23 Firms for Rule 105 Short-Sale Violations
The SEC announced enforcement actions against 23 firms for violating Rule 105’s short-selling restrictions against shorting a security and then buying the same security in a public offering within 5 days. Rule 105 of Regulation M intends to prevent traders from artificially depressing the price of public offerings and then profiting. Twenty-two of the twenty-three firms settled the charges for a total of $14.4 million. Andrew J. Ceresney, Co-Director of the SEC’s Division of Enforcement, said: “The benchmark of an effective enforcement program is zero tolerance…” and “we are sending the clear message that firms must pay the price for violations while also conserving agency resources.” The Office of Compliance Inspections and Examinations also issued a Risk Alert warning firms to adopt policies and procedures to prevent violations of Rule 105 because after-the-fact remediation is not the same as prevention.
OUR TAKE: What does Mr. Ceresney mean when he says the enforcement program’s benchmark is “zero tolerance”? Is this signaling the end of deficiency letters and corrective action before enforcement? Also, what does he mean by saying that “firms must pay the price for violations while also conserving agency resources”? Is this a new program where the Enforcement Division will allow smaller fines in exchange for settling without investigation?