SEC Charges Miami-Based Trader With Insider Trading and Short Selling Violations
The Securities and Exchange Commission today charged a Miami-based trader with insider trading in the stock of a Chinese company and conducting illegal short sales in the securities of three other companies.
The SEC alleges that Charles Raymond Langston III learned confidential information in advance of a public announcement that significantly decreased the value of AutoChina International’s stock. Langston was solicited by placement agents to invest in a secondary offering of AutoChina stock. Despite agreeing to keep information confidential and not trade on it, he promptly sold short 29,000 shares of AutoChina stock in advance of the company’s public announcement that it had completed the secondary offering. To avoid detection, Langston made the trades through an entity he owned using a different broker and different account than he used to purchase shares in AutoChina’s initial offering. Langston made $193,108 in illegal profits by trading on the inside information.
“Langston agreed to keep confidential the information he learned from AutoChina’s placement agent and abstain from trading on it. Yet he chose to place personal greed ahead of the integrity of the securities markets,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.
The SEC’s complaint filed in federal court in Miami further alleges that Langston and two of his companies, Guarantee Reinsurance and CRL Management, violated Rule 105 of Regulation M, which prohibits the short sale of an equity security during a restricted period – generally five business days before a public offering – and the purchase of that same security through the offering. The rule addresses illegal short selling that can reduce offering proceeds received by companies by artificially depressing the market price shortly before the company prices its public offering. The SEC alleges that Langston through Guarantee Reinsurance and CRL Management made short sales in advance of separate secondary offerings by Wells Fargo, Mitsubishi UFJ Financial Group, and Alcoa. He purchased shares in the same offerings. Langston and his companies’ violations of Rule 105 resulted in unlawful gains of more than $1.3 million.
“During restricted periods, Langston and his companies executed short sales that gamed the system and resulted in illegal profits,” said Glenn S. Gordon, associate director for enforcement in the SEC’s Miami Regional Office. “The SEC is resolutely committed to pursuing those who violate Rule 105.”
Langston has agreed to settle the insider trading charges by paying disgorgement of $193,108, prejudgment interest of $22,204, and a penalty of $193,108. Langston and the two companies also agreed to be enjoined for the short selling violations with monetary sanctions to be determined by the court at a later date. Langston neither admits nor denies the allegations that he violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Rule 105 of Regulation M of the Exchange Act.
The SEC’s case against Langston and his companies was investigated by Andre J. Zamorano and Kathleen Strandell in the Miami office, and supervised by Thierry Olivier Desmet. The SEC’s litigation is being led by Christopher E. Martin. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
In September, the SEC announced enforcement actions against 23 firms for Rule 105 violations as a part of a crackdown on potential stock manipulation in advance of stock offerings. The SEC’s National Examination Program simultaneously issued a risk alert that highlights risks to firms from non-compliance with Rule 105.