U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20775 / October 7, 2008
SECURITIES AND EXCHANGE COMMISSION v. LION GATE CAPITAL, INC. and KENNETH RICKEL, Civil Action No. 08-06574 (DSF) (MANx) (C.D. Cal.)
SEC CHARGES BEVERLY HILLS FIRM AND PRINCIPAL FOR ILLEGAL SHORT SELLING
The Securities & Exchange Commission today filed an injunctive action in the United States District Court for the Central District of California against Lion Gate Capital, Inc. (Lion Gate) and its principal, Kenneth Rickel alleging illegal short selling. Rickel, who resides in Los Angeles, California, is the president, sole owner, and sole employee of Lion Gate, which is in the business of trading securities and has its principal place of business in Beverly Hills, California. According to the complaint, Lion Gate and Rickel realized profits of at least $207,291 from their illegal trading.
From January 2005 through September 2006, Lion Gate and Rickel allegedly used shares purchased in fourteen registered public offerings to cover short sales that occurred during the five business days before the pricing of those offerings (the restricted period). The Commission’s complaint alleges that this conduct violates Rule 105 of Regulation M under the Securities Exchange Act of 1934. The SEC alleges that in each instance, Lion Gate and Rickel engaged in transactions that created the appearance that the shares covering the restricted period short sales were purchased on the open market. According to the complaint, Rickel made every trading decision and placed every one of the violative trades.
At the time of the conduct in the complaint, Rule 105 prohibited covering a short sale made during the restricted period with securities purchased in a registered offering. Rule 105 was designed to prevent manipulative short selling prior to registered public offerings and to promote offering prices based upon open market prices, as determined by supply and demand rather than artificial forces. Short sellers who violated Rule 105 largely could avoid market risk by using shares purchased at a discount in a registered offering to cover restricted-period short sales. The Commission seeks permanent injunctions against each defendant, and disgorgement, prejudgment interest, and civil penalties against each defendant.