A Melville proprietary trading firm and its owner will pay $7.2 million to settle civil charges in what U.S. regulators said marks the largest sanction they have ever imposed for certain short-selling violations.
Worldwide Capital Inc. and its sole owner, Jeffrey Lynn, are settling the case without admitting or denying the charges, the Securities and Exchange Commission said.
According to the SEC order, Lynn and his firm violated Rule 105 of "Regulation M," which prohibits a trader from shorting stock before a public offering, and then subsequently buying that same stock through the offering.
Lynn's defense attorney, Ira Lee Sorkin, declined to comment.
The SEC's Rule 105 is designed to protect against potential market manipulation; however, the SEC does not need to prove a defendant intended to violate the rule in order to bring charges.
In the Lynn case, the SEC said Wednesday that he and his trading shop participated in 60 different offerings from October 2007 through February 2012 by shorting shares during the restricted periods and then purchasing those shares in the offering.
Typically, the restricted period lasts for five business days before a public deal.
As a result of the trades, the SEC said Lynn and Worldwide reaped ill-gotten gains of more than $8.4 million. About half of that amount was paid out to individual traders who had facilitated the short sales, and Lynn and his firm kept the rest.
Under the terms of the settlement with the SEC, Worldwide and Lynn will pay back roughly $4.2 million, plus a $2.5 million penalty and more than $500,000 in prejudgment interest. -- Reuters