Minneapolis investment firm Whitebox Advisors has agreed to repay $1.2 million in profits and penalties to settle allegations of illegal short-selling during stock offerings following an investigation by the U.S. Securities and Exchange Commission.
Whitebox was one of 19 hedge funds and private equity firms investigated by the SEC for participating in a public stock offering as a buyer after selling short the same stock during a pre-offering restricted period. Such practices are illegal under a rule designed to protect against potentially manipulative downward pressure on stock prices before offerings, the SEC said.
In the settlement, announced in September, Whitebox neither admitted nor denied wrongdoing, but consented to filing an order that describes short-selling misconduct in five offerings. The deals resulted in $788,779 in profits, and Whitebox agreed to repay the profits, interest and a $365,593 civil penalty, the order said.
The government said the investigation involved illegal short sales in which the trader borrows shares and sells them in hope the price will drop and they can be replaced with shares purchased at a lower price. The trades in 2011 and 2012 were in stocks of American Capital Agency Co., Endeavour International and Annaly Capital.
Whitebox executives did not respond to phone inquiries this week. The SEC said that Whitebox took prompt “remedial action” and cooperated with the investigation.
The 19 firms and one individual trader agreed to settle their respective matters for a combined amount of more than $9 million. The SEC’s actions are part of an ongoing enforcement effort, which included a similar case in September 2013 that resulted in sanctions of more than 20 firms and more than $14.4 million in repayment, interest and penalties.