On September 16, 2014, the SEC announced that it had sanctioned 19 firms and one individual for violating Rule 105 of Regulation M of the Exchange Act by short selling particular securities shortly before purchasing shares of the same securities in a follow-on public offering. Rule 105 generally prohibits firms or individuals from short selling a security that is the subject of an offering if they have purchased the same security from an underwriter, broker or dealer within a restricted period, generally a period of five business days preceding the pricing of the offering. All defendants agreed to settle their respective matters for a combined amount of over $9 million in disgorgement, interest, and penalties.
The SEC’s actions are part of an ongoing enforcement initiative, which included similar enforcement actions in September 2013 that resulted in sanctions for over 20 firms and over $14.4 million in disgorgement, interest, and penalties. In its press release, the SEC announced that its Enforcement Division is able to quickly identify potential violations through close coordination with the Financial Industry Regulatory Authority (FINRA) and the SEC’s National Exam Program.