D. E. Shaw and Company and Deerfield Management are among a large group of investment firms that have agreed to pay $14.4 million to settle market manipulation charges by the Securities and Exchange Commission.
The regulator accused 23 firms of obtaining “illicit profits” by improperly buying and selling shares, in what is the commission’s biggest crackdown since it strengthened a ban on certain short-selling in 2007.
Twenty-two of the firms have agreed to settle the civil charges, though they did not admit or deny wrongdoing. G-2 Trading is fighting the charges, the S.E.C. said. The charges relate to Rule 105, which prohibits investment funds from short-selling a company’s stock within the five days before that company’s public stock offering and then buying new shares in the public offering to cover the sale.
Short-sellers sell stock they have borrowed, betting that they will be able to buy those shares back at a later date for a lower price. The S.E.C. contends that short-selling ahead of a company public offering artificially depresses the value of the shares.
The S.E.C. accused the firms of buying shares from a broker, dealer or underwriter in a public offering days after short-selling the same securities.
It also issued a warning to “highlight risks to firms” that had not complied with Rule 105. The S.E.C. has said the rule applied to firms regardless of the intent of a trader.
D. E. Shaw agreed to pay more than $667,000 to cover its gains on the trades, prejudgment interest and penalties. The fund had $32 billion in assets under management as of July. A spokesman at D. E. Shaw declined to comment.
Deerfield Management, the health care hedge fund founded by the former Tiger Management director Arnold H. Snider, agreed to pay more than $1.9 million to settle the claims.
Other funds that agreed to settle the charges included the Ontario Teachers’ Pension Plan Board, Hudson Bay Capital Management, the Blackthorn Investment Group, Claritas Investments, the Credentia Group, JGP Global Gestão de Recursos, M.S. Junior Swiss Capital Holdings and Michael A. Stango, Manikay Partners, the Meru Capital Group, Merus Capital Partners, Pan Capital, PEAK6 Capital Management, Philadelphia Financial Management of San Francisco, Polo Capital International Gestão de Recursos, Soundpost Partners, Southpoint Capital Advisors, Talkot Capital, Vollero Beach Capital Partners, War Chest Capital Partners and Western Standard.
An earlier version of this post misidentified the type of firm charged. They were hedge funds and other investment firms, not just hedge funds. In addition, the headline misstated the number of firms that settled. It was 22, not 23. The post also misstated the amount of assets D.E.Shaw has under management. It is $32 billion, not $22.9 billion.