Among recent enforcement actions by the Securities and Exchange Commission were charges against two Wolverine affiliates for failures to prevent misuse of nonpublic information and charges against six firms for short-selling violations in advance stock offerings.
In addition, the Financial Industry Regulatory Authority censured and fined Merrill Lynch Professional Clearing Corp.
Wolverine Affiliates Charged by SEC
The SEC charged broker-dealer Wolverine Trading LLC and investment advisory firm Wolverine Asset Management LLC with failing to maintain and enforce policies and procedures to prevent the misuse of material nonpublic information.
According to the agency, from February to March 2012, the two Chicago-based affiliates repeatedly shared information, despite their firms’ policies and procedures to the contrary. They shared trading positions and strategies for TVIX, an exchange-traded note with a market price that traded at a premium to its value after new issuances of the note were temporarily suspended.
Traders from both affiliates got together to talk about TVIX issues, disregarding information barriers between the firms. The affiliates also discussed details about the potential reopening of new TVIX issuances. Prices for the note fell on March 22, 2012, before its issuer announced the reopening of issuances of the note, and Wolverine Asset Management made money from a market opportunity it should never have had.
Without admitting or denying the findings, Wolverine Trading and Wolverine Asset Management agreed to settle the SEC’s charges. In addition to being censured, each firm agreed to pay penalties of $375,000, and Wolverine Asset Management will pay disgorgement of $364,145.80, plus prejudgment interest of $39,158.47.
6 Firms Charged for Short-Selling Violations
Six firms were charged by the SEC with short-selling violations, and one of those firms as a repeat offender was barred for a year from participating in stock offerings.
According to the agency, Spain-based Auriga Global Investors, Sociedad de Valores S.A.; Harvest Capital Strategies LLC; J.P. Morgan Investment Management Inc.; Omega Advisors Inc.; Sabby Management LLC; and War Chest Capital Partners LLC settled with the SEC after the agency found that the six firms engaged in short selling of particular stocks shortly before they bought shares from an underwriter, broker or dealer participating in a follow-on public offering. That action usually artificially depresses the market price for a stock, thus cutting offering proceeds, while at the same time bringing in illicit proceeds for the trader.
Auriga agreed to pay disgorgement of $436,940.52, prejudgment interest of $2,184.70, and a penalty of $179,277.28. Harvest agreed to pay disgorgement of $18,835, prejudgment interest of $619.28, and a penalty of $65,000. J.P. Morgan agreed to pay disgorgement of $662,763, prejudgment interest of $56,758.40, and a penalty of $364,689. Omega agreed to pay disgorgement of $68,340, prejudgment interest of $686.58, and a penalty of $65,000. Sabby agreed to pay disgorgement of $184,747.10, prejudgment interest of $2,331.51, and a penalty of $91,669.95.
And War Chest, although it agreed to pay disgorgement of $179,516, prejudgment interest of $22,302.02, and a penalty of $150,000, was a target in an earlier SEC action, and refused to review its past trading for possible additional violations. The SEC’s Division of Enforcement found additional violations, and as a result has brought a second action against War Chest with increased sanctions. Under this order, the firm is now subject to a censure, a significant penalty, and conduct-based order prohibiting it from participating in secondary offerings for a period of one year.
FINRA Censures, Fines Merrill $100,000
Merrill Lynch Professional Clearing Corp. was censured by FINRA and fined $100,000 after the agency found that the firm submitted trade corrections directly through the Options Clearing Corp. (OCC) for orders in multiple options series that resulted in the improper duplication of options trades and the firm incurring a loss of $13.2 million.
FINRA said the firm failed to have policies and procedures that were adequate to prevent options order duplication.
The firm neither admitted nor denied the findings, but consented to the sanctions.
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