New York (HedgeCo.Net) – The largest-ever monetary sanction for Rule 105 short selling violations has been doled out by the SEC to a Long Island-based proprietary trading firm. Its owner agreed to pay $7.2 million to settle charges.
According to the SEC’s order instituting settled administrative proceedings, Jeffrey W. Lynn created Worldwide Capital for the purpose of investing and trading his own money. Lynn’s principal investment strategy focused primarily on new shares of public issuers coming to market through secondary and follow-on public offerings. Through traders he engaged to trade on his behalf, Lynn sought allocations of additional shares soon to be publicly offered, usually at a discount to the market price of the company’s already publicly trading shares. He and his traders would then sell those shares short in advance of the offerings. Lynn and Worldwide Capital improperly profited from the difference between the price paid to acquire the offered shares and the market price on the date of the offering.
“Rule 105 is an important safeguard designed to protect the market against manipulative trading, and we will continue to aggressively pursue violators,” said Andrew M. Calamari, director of the SEC’s New York Regional Office.
To settle the SEC’s charges, Worldwide Capital and Lynn agreed to jointly pay disgorgement of $4,212,797, prejudgment interest of $526,358, and a penalty of $2,514,571. Lynn and his firm agreed to cease and desist from violating Rule 105 without admitting or denying the findings in the SEC’s order.
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