Nineteen Firms to Pay Over $9 Million for Rule 105 Violations
The SEC has assessed more than $9 Million in penalties, disgorgement and interest against 19 firms and one trader for violations of Rule 105 of Regulation M, which prohibits short selling within 5 days of buying the same security in a public offering. The largest award exceeded $3.5 Million. The SEC indicated that the charges resulted from its “continuing enforcement initiative” examining compliance by hedge and private equity fund sponsors. Andrew J. Ceresney, Director of the SEC’s Division of Enforcement said, “These charges should remind investment advisers and others of the need for robust and comprehensive compliance programs covering Rule 105 compliance.” The SEC said it worked with FINRA to access trading data.
OUR TAKE: Although Rule 105 is somewhat arcane, these actions show that firms need experienced compliance personnel to ensure that they don’t accidentally trip over regulatory wires and wind up poorer and in the news.