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SEC Charges Six Firms for Short Selling Violations in Advance of Stock Offerings

The Securities and Exchange Commission  (“SEC”) announced enforcement actions against six firms, including more than $2.5 million in monetary sanctions and, in the case of one previously sanctioned firm, an order barring the firm from participating in stock offerings for a period of one year as part of its ongoing enforcement initiative focused on violations of Rule 105 of Regulation M. Intended to preserve the independent pricing mechanisms of the securities markets and prevent stock price manipulation, Rule 105 prohibits firms from participating in public stock offerings after selling short those same stocks.Through its Rule 105 Initiative, which was first announced in 2013 as an effort to address violations of the rule in an expedited and streamlined way, the Division of Enforcement has taken action on every Rule 105 violation over a de minimis amount that has come to its attention—promoting a message of zero tolerance for these offenses.  As a result, based on available information, the SEC has seen a dramatic decrease in Rule 105 violations since the Initiative began.  In the first fiscal year after the Initiative was announced, Rule 105 violations, detected through various means available to the SEC, decreased by approximately 90 percent over the previous six years.  Rule 105 violations in fiscal year 2015 were similarly lower than before the Initiative.

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