Slap, slap, slapS on wrist for manipulative PIPE shorting hedgies!!
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Final Judgment Entered in “PIPE” Case
August 12, 2009
complianceweek.com
Last week, a federal judge in the SDNY entered a final judgment against Edwin “Bucky” Lyon, IV, and various Gryphon Partners entities in an SEC insider trading case. The case, filed back in December 2006, is part of the SEC’s ongoing campaign against insider trading by hedge funds in connection with PIPE (”private investment in public equity”) offerings.
As previously discussed here, hedge funds are routinely asked to invest in PIPE offerings. The fact that a PIPE is imminent, however, is generally regarded as material, negative news likely to drive down the price of the company’s stock because a PIPE offering may be dilutive to existing shareholders, may be seen as “last resort” financing for a company in poor health, and is often at a steep discount to the market price.
In the Lyon case, Lyon and each Gryphon Partners entity agreed to pay, jointly and severally, disgorgement of $66,712, plus prejudgment interest of $33,850, and a civil penalty of $310,288. In addition, several of the Gryphon Partners entities agreed to pay, jointly and severally, disgorgement in the amount of $243,576, plus prejudgment interest of $123,590.
The SEC’s complaint alleged that, in connection with four separate PIPE offerings,
Lyon and Gryphon Partners, after being solicited to invest, engaged in illegal insider trading by selling short the PIPE issuers’ securities prior to the public announcement. Lyon and Gryphon Partners engaged in this conduct notwithstanding their agreement to keep information about the PIPE confidential.
The SEC has brought several other “PIPE” insider trading cases against hedge fund managers. These cases include actions against Hilary Shane (May 18, 2005); Jeffrey Thorp (March 14, 2006), and Robert Berlacher (September 13, 2007). The SEC’s case against Mark Cuban, which was dismissed last month, was also a PIPE-related case.
Posted by: bcarton @ 12:18 pm
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