The Securities and Exchange Commission (SEC) has reached a final decision in its case against Lupo Securities LLC.
On December 4, 2023, the Honorable John Robert Blakey of the Northern District Court of Illinois signed the final decision regarding Lupo Securities.
The Court ordered that the defendant be permanently restrained and ordered to violate Article 14e-4 [17 C.F.R. § 240.14e-4]enacted under the Securities Exchange Act of 1934 (“Sexchange Act”), acting alone or in concert with others, directly or indirectly, to offer any subject security in a partial offering for its own account where its net positive position is not equal to or greater than the amount offered on a particular security or equivalent security.
Defendant is liable for disgorgement in the amount of $420,000, representing the net profits earned as a result of the conduct alleged in the complaint, together with prejudgment interest in the amount of $55,000 and a civil penalty of $75,000 pursuant to Exchange Act Section 21(d) (3) [15 U.S.C. § 78u(d)(3)].
The decision ended a lawsuit filed by the SEC in July 2021. The SEC’s complaint alleged that Lupo Securities, LLC violated the so-called “short auction rule” and enriched itself at the expense of other participants in a partial offering.
According to the SEC’s complaint, in a 2016 partial auction of Lockheed Martin Corp. common stock, Lupo, then an SEC-registered broker-dealer, disposed of more Lockheed stock than it owned on a net basis, in violation of the short offer rule. Because partial offers are for less than the total number of shares of a security outstanding, if the partial offer is oversubscribed, the offeror accepts shares pro rata. Here, Lockheed’s partial bid was oversubscribed, and the complaint alleges that, by tendering excess Lockheed stock, Lupo received more Leidos Holdings, Inc. stock. – of the company acquiring a Lockheed business unit through the offer – than it was entitled to, to the detriment of other participants who would have received more Leidos shares but for the breach.
The complaint alleged that, as a result of this conduct, Lupo received approximately 610,000 more Leidos shares than it would have received had it complied with the short auction rule.
The SEC’s complaint alleged that Lupo violated Rule 14e-4 under the Securities Exchange Act of 1934.