Published on Feb 22nd, 2023 |

SEC Charges Investment Advisory Firm For Trading Violations

SEC Releases

Brief Synopsis

On February 17th, the SEC charged an Investment Advisory Firm for violating SEC trading rules.

The allegations revolve around SEC Rule 105, which is designed to prevent manipulative short selling by Firms.

What Happened?

What Happened?

According to the SEC:
  • The Firm purchased stock in a covered public offering for five Private Fund clients.
  • However, the Firm had also sold the stock short prior to this purchase.
  • The action violated Rule 105 of Regulation M, and the SEC noted that the Firm had no formal written policies related to Rule 105.
  • The Firm agreed to pay $103,591 to settle the charges.
  • Because of the unlawful trading, three funds were forced to disgorge their profits totaling almost $111,000 and $5,000 in interest.

Previous SEC Enforcement on Rule 105

Previous SEC Enforcement on Rule 105

Enforcement of Rule 105 has been costly for many firms in the past decade:
  • In 2022, an Advisory Firm agreed to pay approximately $6.9 million.
  • In 2017, a Firm was charged over $630,000 for Rule 105 violations.
  • In 2015, a Firm was barred from stock offerings for a year, and six Firms were charged more than $2.5 million.
  • In 2014, an individual Trader and 19 Firms were fined over $9 million in disgorgement, interest, and penalties.
  • In 2013, twenty-three Firms were fined more than $14.4 million.

Vigilant's Final Conclusion

Vigilant’s Final Conclusion

Under Rule 105, Firms are reminded that they cannot short stocks during a restricted period, which generally is five business days before a covered public offering.

Most of the Firms charged did not have proper written policies and procedures related to Regulation M.

In today’s regulatory environment, Firms should consider taking a proactive approach to compliance, focusing on creating a “culture of compliance” where policies and procedures are properly implemented and enforced. Vigilant offers end-to-end compliance support tailored to your firm’s needs.

Contact Us for Compliance Assistance