The Securities and Exchange Commission (SEC) announced settled charges against Greenwich, Connecticut-based investment advisory firm Contrarian Capital Management LLC for violating an SEC rule when it bought shares in two public securities offerings for advisory clients after placing short sales on the same stock for advisory clients during a time period when the SEC Rule prohibited such purchases.
The SEC’s decision finds that Contrarian violated Rule 105 of Regulation M of the Securities Exchange Act, which prohibits the short sale of an equity security during a limited period (generally five business days before a covered public offering) and thereafter the purchase of the same security in the offer, absent an exception. The Rule applies regardless of the dealer’s intent and is designed to prevent potential fraudulent short selling prior to the pricing of covered secondary securities offerings.
The SEC’s decision finds that Contrarian violated Rule 105 by participating in two covered securities offerings in April and June 2020 after short selling the same securities during the respective restricted periods.
According to the order, in each case the short sales resulted from the exercise and assignment of call options that Contrarian had sold on behalf of its clients prior to the restricted period. The SEC order states that Contrarian has since taken corrective action, including revising its Section 105 policies and procedures.
Without admitting or denying the findings of the SEC order, Contrarian agreed to cease and desist from committing or causing violations of Rule 105 and to pay impairment of $351,726.86, prejudgment interest of $29,600.50, and a civil penalty of $00014 .