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Regulation and Compliance > Federal Regulation > SEC

Deephaven Settles SEC PIPEs Case

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MINNETONKA, Minn. (–Deephaven Capital Management and one of its former employees have consented to Securities and Exchange Commission charges stemming from short selling within 19 different PIPE deals.

Private investment in public equity has been popular in recent years among hedge funds as a way to gain access to securities at a discount to the market price before the offering of shares is publicly announced. Hedge fund activity in the PIPE markets has been the subject of SEC scrutiny for the last couple of years.

The SEC alleges that Deephaven and Bruce Lieberman, acting as Deephaven’s director of private placements, between Aug. 2001 and March 2004 short-sold securities linked to PIPE agreements before those deals were announced to the public.

Deephaven and Mr. Lieberman, who left the firm in January 2005, both consented to the charges of insider trading without admitting or denying the SEC’s allegations.

The over $3 billion hedge fund firm agreed to pay $5.7 million in disgorgement, prejudgment interest and civil penalties. Lieberman has been barred from associating with any investment adviser for at least three years and was fined $110,000 for his involvement.