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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 48188 / July 17, 2003

INVESTMENT ADVISERS ACT OF 1940
Release No. 2150 / July 17, 2003

Administrative Proceeding
File No. 3-11187


 

 

In the Matter of

ASCEND CAPITAL, LLC,
MALCOLM P. FAIRBAIRN, and
EMILY WANG FAIRBAIRN,

Respondents.

 

 


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ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 203(e) OF THE INVESTMENT ADVISERS ACT OF 1940 AS TO ASCEND CAPITAL, LLC, AND SECTION 203(f) OF THE INVESTMENT ADVISERS ACT OF 1940 AS TO MALCOLM P. FAIRBAIRN AND EMILY WANG FAIRBAIRN

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Section 203(e) of the Investment Advisers Act of 1940 ("Advisers Act") against Ascend Capital, LLC ("Ascend") and Section 203(f) of the Advisers Act against Malcolm P. Fairbairn and Emily Wang Fairbairn (jointly, "the Fairbairns").

II.

In anticipation of the institution of these proceedings, Ascend and the Fairbairns (collectively, "Respondents") have each submitted Offers of Settlement (the "Offers"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, Respondents consent to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 21C of the Exchange Act and Sections 203(e) and 203(f) of the Advisers Act ("the Order"), as set forth below.

III.

On the basis of this Order and Respondents' Offers, the Commission finds that:

Respondents

1. Ascend, a Delaware limited liability company, headquartered in San Francisco, California, is a registered investment adviser in the State of California. It serves as investment adviser to three hedge funds (Ascend Partner, L.P., Ascend Offshore Fund, Ltd., and Ascend Partners Sapient, L.P.) and two separately managed accounts. Ascend has full discretion to make investment decisions for the hedge funds and the two separately managed accounts.

2. Malcolm P. Fairbairn, age 39, is the founder and sole managing member of Ascend and husband of Emily Wang Fairbairn. Mr. Fairbairn has sole responsibility for managing the investment portfolios of Ascend's three hedge funds and two separately managed accounts. Mr. Fairbairn makes and authorizes all trading decisions on behalf of Ascend, and relays his trading decisions to his wife, Ms. Fairbairn, for execution.

3. Emily Wang Fairbairn, age 40, is employed as a trader at Ascend and is the wife of Malcolm P. Fairbairn. She was responsible for directing the execution of all the securities trades that are the subject of the Order.

Background

4. On three occasions in 2001, Ascend and the Fairbairns sold securities short during the five business days before the pricing of public offerings and then covered the short positions with securities purchased in the offerings. Their profits on these transactions totaled $19,033.50.

5. Section 10(a) of the Exchange Act prohibits effecting a short sale of a security registered on a national securities exchange in contravention of the rules and regulations as the Commission may prescribe. Rule 105 of Regulation M, "Short Selling in Connection With a Public Offering," prohibits covering a short sale with securities obtained in a public offering if the short sale occurred within five business days before the pricing of the offering (the "pricing period"). In pertinent part, Regulation M, Rule 105 provides: "In connection with an offering of securities for cash pursuant to a registration statement ... filed under the Securities Act, it shall be unlawful for any person to cover a short sale with offered securities purchased from an underwriter or broker or dealer participating in the offering, if such short sale occurred during the ... period beginning five business days before the pricing of the offered securities and ending with such pricing ...." 17 C.F.R. § 242.105(a)(1).

6. During the relevant period, Ascend and the Fairbairns engaged in short selling and covering transactions prohibited under Regulation M, Rule 105 ("Rule 105") in connection with their purchase of securities in public offerings made by Praecis Pharmaceuticals, Inc. ("PRCS"), Sprint Corporation ("FON"), and American Medical Systems Holdings ("AMMD").

A. Praecis Pharmaceuticals, Inc.

7. On January 26, 2001, PRCS filed with the Commission a Form S-1 registration statement for an offering of 5.5 million shares of its common stock. After the market closed on February 14, 2001, the shares were priced at $24.56 per share. Accordingly, the Rule 105 pricing period was February 8 through February 14, 2001.

8. On February 13, 2001, Ascend and the Fairbairns sold short 1,000 PRCS shares. On February 15, 2001, shares sold through the offering became publicly available and Ascend and the Fairbairns purchased 1,000 PRCS shares in the offering from an underwriter.

9. On March 13, 2001, with a short position of 1,000 shares and a long position of 1,000 shares purchased in the offering, Emily Fairbairn directed a trader at an executing brokerage firm to "cross" 1,000 PRCS shares at $23.50. Ms. Fairbairn's "cross" instruction resulted in the trader placing limit orders to sell and buy 1,000 PRCS shares at $23.50 within the same Ascend account. A NASDAQ audit trail shows that the orders to sell and buy 1,000 shares were matched on the exchange.

10. Given that Ascend was on both sides of the trade - selling the offering shares with a limit order and then placing another limit order to buy the same number of shares at the same price - the transaction resulted in a cross trade with the offering shares being sold and then purchased again by Ascend.

11. Later on March 13, 2001, in violation of Rule 105, Ms. Fairbairn covered the open 1,000-share short position with the 1,000 PRCS shares purchased in the public offering.

B. Sprint Corporation

12. On February 20, 2001, FON filed with the Commission a Form S-3 registration statement for an offering of over 152 million shares of its common stock. After the market closed on May 30, 2001, the shares were priced at $19.00 per share and became publicly available. Accordingly, the Rule 105 pricing period was May 24 through May 30, 2001.

13. On May 29, 2001 and May 30, 2001, Ascend and the Fairbairns sold short 35,000 FON shares. After the pricing, Ascend and the Fairbairns purchased a total of 25,000 FON offering shares from two underwriters. On May 31, 2001, Ascend and the Fairbairns purchased 10,000 FON shares on the open market and used the shares to partially cover Ascend's open short position, thus reducing Ascend's open short position to 25,000 shares.

14. On May 31, 2001, with a short position of 25,000 shares and a long position of 25,000 shares purchased in the offering, Ms. Fairbairn directed a trader at an executing brokerage firm to "cross" 25,000 FON shares at $19.73. Ms. Fairbairn's "cross" instruction resulted in the trader placing limit orders to sell and buy 25,000 FON shares at $19.73 within the same Ascend account. A New York Stock Exchange audit trail shows that the orders to buy and sell the 25,000 shares were matched on the exchange.

15. Given that Ascend was on both sides of the trade - selling the offering shares with a limit order and then placing another limit order to buy the same number of shares at the same price - the transaction resulted in a cross trade with the offering shares being sold and then purchased again by Ascend.

16. Later on May 31, 2001, in violation of Rule 105, Ms. Fairbairn covered the open 25,000-share short position with the 25,000 FON shares purchased in the public offering.

C. American Medical Systems Holdings

17. On June 6, 2001, AMMD filed with the Commission a Form S-1 registration statement for an offering of over 7 million shares of its common stock. After the market closed on June 26, 2001, the shares were priced at $16.40 per share; thus, the Rule 105 pricing period was June 20 through June 26, 2001.

18. On June 25, 2001 and June 26, 2001, Ascend and the Fairbairns sold short 21,000 shares of AMMD. On June 27, 2001, shares sold through the offering became publicly available and Ascend and the Fairbairns purchased 5,000 shares in AMMD's public offering from an underwriter, and an additional 16,500 shares in the open market. The total long position of 21,500 shares was later reduced to 21,000 shares with the sale of 500 shares on September 10, 2001.

19. On October 5, 2001, with a short position of 21,000 AMMD shares and a long position of 21,000 AMMD shares (including the 5,000 shares purchased by Ascend in the public offering), Ms. Fairbairn directed a trader at an executing brokerage firm to "cross" 21,000 shares of AMMD at $18.75. Ms. Fairbairn's "cross" instruction resulted in the trader placing limit orders to sell and buy 21,000 AMMD shares at $18.75 within the same Ascend account. A NASDAQ audit trail shows the orders to buy and sell 21,000 AMMD shares were matched on the exchange.

20. Given that Ascend was on both sides of the trade - selling the 5,000 offering shares with a limit order and then placing another limit order to buy the same number of shares at the same price - the transaction resulted in a cross trade with the 5,000 offering shares being sold and then purchased again by Ascend.

21. Later on October 5, 2001, in violation of Rule 105, Ms. Fairbairn partially covered the open 21,000-share short position with the 5,000 AMMD shares purchased in the public offering.

22. As a result of the conduct described above, Ascend and the Fairbairns willfully1 violated Regulation M, Rule 105 thereunder, which makes it "unlawful for any person to cover a short sale with offered securities purchased from an underwriter or broker or dealer participating in the offering, if such short sale occurred during the ... period beginning five business days before the pricing of the offered securities and ending with the pricing."

23. As a result of the conduct described above regarding the trading in FON, Ascend and the Fairbairns willfully violated Section 10(a) of the Exchange Act, which prohibits effecting "a short sale ... of any security registered on a national securities exchange, in contravention of the rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors."

IV.

In determining to accept the Offers, the Commission considered remedial acts promptly undertaken by Respondents and cooperation afforded the Commission staff.

V.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Respondents' Offers.

ACCORDINGLY, IT IS HEREBY ORDERED:

A. Pursuant to Section 21C of the Exchange Act and Section 203(e)(5) of the Advisers Act, that Respondent Ascend cease and desist from committing or causing any violations and any future violations of Section 10(a) of the Exchange Act and Regulation M, Rule 105;

B. Pursuant to Section 21C of the Exchange Act and Section 203(f) of the Advisers Act, that Respondents Malcolm P. Fairbairn and Emily Wang Fairbairn cease and desist from committing or causing any violations and any future violations of Section 10(a) of the Exchange Act and Regulation M, Rule 105.

C. IT IS FURTHERED ORDERED that Respondents shall, jointly and severally, within thirty (30) days of the entry of this Order, pay disgorgement and prejudgment interest in the total amount of $21,258.50 to the United States Treasury. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Ascend Capital, LLC, Malcolm P. Fairbairn, and Emily Wang Fairbairn as Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Antonia Chion, Associate Director, Division of Enforcement, Securities and Exchange Commission, 450 5th Street N.W., Washington, D.C. 20549-0810.

D. IT IS FURTHER ORDERED that Respondents shall, jointly and severally, within thirty (30) days of the entry of this Order, pay a civil money penalty in the amount of $25,000.00 to the United States Treasury. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Ascend Capital, LLC, Malcolm P. Fairbairn, and Emily Wang Fairbairn as Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Antonia Chion, Associate Director, Division of Enforcement, Securities and Exchange Commission, 450 5th Street N.W., Washington, D.C. 20549-0810.

By the Commission:

Jonathan G. Katz
Secretary

 

1 "Willfully" as used in this Order means intentionally committing the act which constitutes the violation, see Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). There is no requirement that the actor also be aware that he is violating one of the Rules or Acts.

 

http://www.sec.gov/litigation/admin/34-48188.htm


Modified: 07/17/2003