U.S. SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 21521 / May 11, 2010
SEC v. Leonard J. Adams, Civ. Action No. 1:10-cv-10799
SEC FILES SETTLED ACTION AGAINST LEONARD J. ADAMS FOR VIOLATING RULE 105 IN CONNECTION WITH NUMEROUS SECONDARY OFFERINGS
The Securities and Exchange Commission announced today that it filed a settled civil action against Leonard J. Adams for committing multiple violations of Rule 105 of Regulation M. The complaint, filed in the United States District Court for the District of Massachusetts, alleges that Adams violated Rule 105 in connection with at least 94 offerings between March 2006 and December 2008, resulting in ill-gotten gains of $331,387. Without admitting or denying the allegation of the complaint, Adams agreed to pay a civil money penalty in the amount of $165,693.
Rule 105 helps prevent abusive short selling and market manipulation by ensuring that offering prices are set by natural forces of supply and demand for the securities in a secondary offering rather than by manipulative activity. Short selling ahead of offerings can reduce the proceeds received by public companies and their shareholders by artificially depressing the market price shortly before the company prices its offering. The SEC amended Rule 105 effective October 2007 to prevent this trading practice known as “shorting into the deal.” The revised rule generally prohibits the purchase of offering shares by any person who sold short the same securities within five business days before the pricing of the offering.
The Commission today also instituted settled cease-and-desist proceedings against Adams concerning the same conduct. In connection with these proceedings, Adams, without admitting or denying the Commission’s findings, agreed to an order requiring him to cease and desist from committing or causing any violations and any future violations of Rule 105 of Regulation M under the Securities Exchange Act of 1934 and to pay disgorgement of $331,387 and prejudgment interest in the amount of $16,613 (to be paid in four quarterly installments of $87,000).
See Also: SEC Complaint