Last week, the SEC charged five traders for committing short selling violations in the course of trading both for themselves and on behalf of Worldwide Capital Inc. Worldwide Capital is a proprietary firm from Long Island, New York, which paid the biggest monetary sanction for violating Rule 105 ever in March of this year when it agreed to pay $7.2 million to settle charges made by the SEC.
Rule 105 forbids short selling equity securities during a fixed restricted restrictive period, which is usually five business days before a public offering, and then buying that same security through the offering. According to the SEC, Derek W. Bakarich, Tina Lizzio, Carmela Brocco, William W. Vowell, and Steven J. Niemis did just that. They bought the offering shares through accounts opened in their names or names of alter ego corporate entities at big broker-dealers and then executed the short sales of the securities through an account in Worldwide Capital’s name at other, smaller broker-dealers.
The SEC found that Jeffery W. Lynn, the owner of Worldwide Capital, selected these traders to invest and trade his own money. Their primary strategy consisted of acquiring allocations of new shares of public issuers coming to market through secondary and follow-on public offerings cheaper than the market price of the company’s shares that were already trading publicly. The traders then sold short the shares in those issuers before the offerings, trying to profit by the difference between the price they paid to obtain the offered shares and the market price on the date of the offering.
The traders, according to the SEC, violated Rule 105 at least nine times each between August 2009 and March 2012 and received illegal profits ranging from about $16,000 to over $200,000.
All five traders agreed to settle the charges and will pay a total of almost $750,000. Each trader agreed to cease and desist violating the rule without either admitting or denying the findings in the SEC’s order.
If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies.