(Article from Registered Funds Regulatory Update, July 2022)
For more information, please visit the Registered Funds Resource Center.
The SEC recently settled charges against Weiss Asset Management LP (“WAM”), a registered investment adviser, for violating short-selling restrictions when it unlawfully purchased stock in seven public offerings after selling short those same stocks.
The Order found that on seven occasions between December 2020 and February 2021, WAM violated Rule 105 of Regulation M under the Exchange Act, which prohibits short selling an equity security during a restricted period and then purchasing the same security through the offering absent an exception. The Rule 105 restricted period is the shorter of the period: (i) beginning five business days before the pricing of the offered securities and ending with such pricing; or (ii) beginning with the initial filing of a registration statement or notification on Exchange Act Form 1-A or 1-E and ending with pricing.
The Order found that these violations occurred because WAM repeatedly miscalculated the restricted period as commencing after the firm’s short sales and incorrectly dismissing red flags raised by the firm’s Rule 105 controls that detected possible violations both before and after WAM participated in the offerings.
The Order highlighted WAM’s significant remedial efforts and cooperation in the SEC staff investigation, including segregating the ill-gotten profits, updating its compliance and training efforts, and promptly self-reporting the seven violations to SEC staff following its own trading records review.
Without admitting or denying the findings, WAM agreed to cease-and-desist and disgorge profits of $6,508,793 plus interest and a civil monetary penalty of $200,000.
In the Matter of Weiss Asset Management LP, SEC Admin. Proc. File No. 3-20899 (June 14, 2022), available at: https://www.sec.gov/litigation/admin/2022/34-95099.pdf.