U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19899 / November 6, 2006
SEC v. Solar Group S.A. and James J. Todd, Civil Action No. 06-CV-12936 (SDNY) (LAK)
SEC Files Enforcement Action Against Offshore Company and Its Trader for Violations of Rule 105
The Securities and Exchange Commission announced today that it filed a settled civil action in the United States District Court for the Southern District of New York against Solar Group S.A., an offshore company, and its sole trader James J. Todd, charging them with violating Rule 105 of Regulation M of the Securities Exchange Act of 1934. Rule 105 prohibits covering a short sale with securities obtained in certain public offerings when the short sale occurs during a specific period (usually five business days) before the pricing of the offering. Without admitting or denying the allegations in the complaint, Solar Group and Todd have agreed to settle the Commission enforcement action by consenting to the entry of a final judgment that permanently enjoins them from future violations of Rule 105, and holds them jointly and severally liable to disgorge $1.1 million in trading profits and prejudgment interest, and to pay a $500,000 civil penalty.
The Commission's complaint alleges that, from January 2001 through July 2005, Solar Group and Todd violated Rule 105 in connection with approximately 176 public offerings by using shares purchased in those offerings to cover short sales made during the restricted period set by Rule 105. The complaint further alleges that in the offerings, the offering price was usually set at a discount to the last reported sale price of the stock before the pricing of the offering. As alleged in the complaint, by short selling just prior to pricing, Solar Group often sold shares short at prices higher than the price it would later pay for the shares in the offering. By engaging in this conduct, the complaint alleges, Solar Group significantly reduced its market risk of investing in public offerings and realized profits that totaled nearly $1 million.
The Commission acknowledges the assistance and cooperation of the National Association of Securities Dealers.