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Regulation and Compliance > Federal Regulation

FINRA Hits Firm for $916,000 Over Illegal Short Sales

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The Financial Industry Regulatory Authority said Wednesday that First New York Securities must pay $916,000 for short selling ahead of 14 public securities offerings.

First New York will pay disgorgement of over $516,000, plus interest, and a fine of $400,000. Additionally, the firm is prohibited from participating in secondary or follow-on offerings for six months.

Part of the Securities Exchange Act of 1934, Rule 105 of Regulation M prohibits the buying of securities in secondary offerings when the purchaser sold short the same security during a restricted period, typically five business days, before the secondary offering is priced.

“Rule 105 of Regulation M is vital to ensuring the integrity and fairness of the offering process,” said Thomas Gira, FINRA’s executive vice president of market regulation, in a statement. “Rule 105 violations, particularly recidivist violations as is the case with First New York, will be aggressively pursued by FINRA.”

From September 2010 to April 2013, First New York sold about 187,100 shares short during the five business days prior to the pricing of 14 public offerings in the securities. It then purchased more than 670,000 shares of the same securities in the offerings. FINRA notes that it previously sanctioned the firm in December 2008 for Regulation M Rule 105 violations and related supervisory failures.

First New York neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

— Check out SEC Cracks Down on 19 Firms, 1 Trader for Short Selling Prior to Stock Offerings on ThinkAdvisor.


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