U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20289 / September 18, 2007
SEC v. Swiss Re Financial Products Corporation, 07 Civ. 8154 (SHS)(SDNY)
Swiss Re Financial Products Corporation Settles SEC Rule 105 Short Selling Charges
On September 18, 2007, the Securities and Exchange Commission filed a settled civil action charging that Swiss Re Financial Products Corporation ("SRFP") violated Rule 105 of Regulation M by selling securities short within five business days before the pricing of following-on offerings and covering the short sales, in whole or in part, with shares purchased in the offerings. SRFP has agreed to settle the case, without admitting or denying the Commission's allegations, and has agreed to the entry of a final judgment directing it to pay a $95,000 penalty. In a related administrative proceeding, SRFP has consented, without admitting or denying the Commission's findings, to the issuance of a Commission order requiring it to cease and desist from causing or committing any violations and any further violations of Rule 105 of Regulation M and to pay disgorgement and prejudgment interest of $457,605.
The Commission's complaint, filed in federal court in Manhattan, alleges that over a period of approximately eighteen months, from mid-2003 until early 2005, in connection with thirteen public offerings by eleven issuers, SRFP engaged in short sales and covering transactions prohibited by Rule 105, and that SRFP profited on all but one of the thirteen transactions, realizing total profits of $380,517 on the profitable transactions. The complaint alleges that by engaging in this conduct, SRFP violated Rule 105 of Regulation M.
More specifically, the complaint alleges that the transactions were effected by several traders located in New York and London who were part of a group of traders that is no longer associated with SRFP or its affiliates; that most of the transactions followed the same general pattern in which SRFP sold securities short either the day of, or the day before, the follow-on or secondary offering; that in each instance, the short sale occurred before the offering was priced; and that the firm covered all or part of the short position with shares it was allocated in the offering. In addition, the complaint alleges that during the relevant period, SRFP did not have procedures in place designed to prevent or detect Rule 105 violations and provided no training to the traders concerning Rule 105.
SRFP, which is headquartered in Manhattan, is a wholly-owned subsidiary of Swiss Re America Holding Corporation, which is wholly owned by Swiss Reinsurance Company, a Swiss company.