According to a SEC litigation release, a hedge fund analyst was fined $317,000 for engaging in insider trading with regard to a PIPE investment. PIPE transactions are subject to close scrutiny from the SEC. In this instance the fund which the analyst worked for established a short position in a company which was completing a PIPE transaction. Evidently the reason the fund established the short was because of inside information about the deal from the analyst. The SEC release can be found here.
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20784 / October 20, 2008
SEC v. Brian D. Ladin et al., Civil Action No. 1:08-CV-01784 (RBW) (D.D.C.)
SEC Charges Former Hedge Fund Analyst with Improper Trading
The Securities and Exchange Commission today charged Brian D. Ladin, a former analyst for Bonanza Master Fund Ltd. (“Bonanza”), a Dallas-based hedge fund, with improper trading in the U.S. District Court for the District of Columbia. Ladin, without admitting or denying the allegations in the Commission’s complaint, agreed to settle charges that he engaged in unlawful insider trading in connection with a 2004 “PIPE” (an acronym for private investment in public equity) offering conducted by Radyne Comstream Inc. As detailed below, Ladin agreed to entry of a final judgment imposing an injunction and ordering him to pay $330,427, consisting of $13,427 in disgorgement and prejudgment interest and a $317,000 civil penalty.
The Commission’s complaint alleges, among other things, that Ladin accepted a duty to keep the offering information confidential. The Complaint further alleges that Ladin, on the basis of the material, non-public PIPE information, presented an investment in Radyne to Bonanza, resulting in Bonanza establishing a 100,000 share short position in Radyne stock. The Commission’s complaint further alleges that Ladin, in signing the offering’s stock purchase agreement on behalf of Bonanza, represented that Bonanza did not hold a short position in Radyne common stock when he knew, or was reckless or negligent in not knowing, that Bonanza held a short position in Radyne’s common stock.
Ladin consented to the entry of a final judgment (i) permanently enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933; (ii) ordering him to pay $10,895 in disgorgement, along with $2,532 in prejudgment interest thereon; and (iii) ordering him to pay a $317,000 civil penalty. Bonanza and its investment adviser, Bonanza Capital, Ltd., consented to the entry of a final judgment ordering them, as relief defendants, to pay a total of $371,429 in ill-gotten gains derived from Ladin’s unlawful conduct (and prejudgment interest thereon).
For more information on this subject, please see:
- Hedge Funds and PIPE Transactions
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