U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19501 / December 20, 2005
Securities And Exchange Commission v. Compania Internacional Financiera S.A. and Yomi Rodrig, Civil Action No. 05-CV-10634 (SDNY) (LAK)
SEC SUES EUROPEAN TRADER COMPANIA INTERNACIONAL FINANCIERA S.A. AND ITS OWNER YOMI RODRIG FOR $6.3 MILLION IN SEC CIVIL ACTION FOR ILLEGALLY COVERING SHORT SALES WITH OFFERING SECURITIES
On December 19, 2005, the Securities and Exchange Commission ("SEC" or the "Commission") filed a settled civil action in the United States District Court for the Southern District of New York against Compania Internacional Financiera S.A., a European investment vehicle, and its sole owner Yomi Rodrig, charging them with violating Rule 105 of Regulation M and Section 10(a) of the Securities Exchange Act of 1934 ("Exchange Act"). Rule 105 prohibits covering a short sale with securities obtained in a public offering when the short sale occurs during a specific restricted period (usually five business days) before the pricing of the offering. Section 10(a) prohibits effecting a short sale of a security registered on a national securities exchange in contravention of the Commission's rules and regulations. Compania and Rodrig have agreed to settle the lawsuit by consenting, without admitting or denying the allegations in the Commission's complaint, to the entry of an order permanently enjoining them from future violations of Rule 105 and Section 10(a) of the Exchange Act, ordering them to disgorge more than $4.8 million in trading profits plus prejudgment interest, and imposing a civil money penalty of $1.4 million.
According to the Commission's complaint, beginning as early as January 2002 through at least March 2005, Compania, under the control and at the direction of Rodrig, used securities purchased from underwriters participating in at least eighty-five (85) public offerings to cover shares Compania had sold short during the restricted period set by Rule 105. Compania typically conducted its short selling on the day of the pricing of the public offering or one or two days earlier. In each offering, the offering price was set on the pricing day, and was usually set at a discount to the last reported sale price of the stock on the pricing day. Accordingly, by short selling just before pricing, Compania often sold shares short at prices higher than the price it would later pay for the shares in the offering. The Commission alleges that Compania made profits of more than $4.7 million from these short sales. The Commission further alleges that in connection with at least forty-nine (49) of the eighty-five (85) offerings, Compania's illegal trading involved exchange traded securities and violated Section 10(a) of the Exchange Act.
If the settlement is approved by the Court, the disgorgement and penalty would be the largest ever recovered in a SEC enforcement action involving violations of Rule 105.
The Commission acknowledges the assistance and cooperation of the National Association of Securities Dealers.
SEC Complaint in this matter