SEC Charges Beverly Hills Firm and Principal for Illegal Short Selling
FOR IMMEDIATE RELEASE
Washington, D.C., Oct. 7, 2008 — The Securities and Exchange Commission today charged Beverly Hills, Calif.-based Lion Gate Capital, Inc. and its principal Kenneth Rickel with illegal short selling in the securities of 14 publicly traded companies.
From January 2005 through September 2006, Lion Gate and Rickel allegedly used shares purchased in 14 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, which helps prevent abusive short selling and market manipulation. 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.
“The Commission is committed to curbing the abuse of short selling,” said Linda Thomsen, Director of the SEC’s Division of Enforcement. “Traders who attempt to hide their violations of the securities laws through sham transactions or other schemes will be held accountable.”
Rosalind R. Tyson, Regional Director of the SEC’s Los Angeles Regional Office, said “As alleged in the complaint, Lion Gate and Rickel engaged in serial violations of an important regulation designed to protect the integrity of the capital markets. Through cases such as this one, the Commission is working to ensure that prices in public offerings are not influenced by inappropriate short selling activity.”
According to the SEC’s complaint, filed in U.S. District Court for the Central District of California, Lion Gate and Rickel realized profits of at least $207,291 from their illegal trading. Rickel, who resides in Los Angeles, is the president, sole owner, and sole employee of Lion Gate, which is in the business of trading securities. According to the complaint, Rickel made every trading decision and placed every one of the violative trades.
At the time of the conduct outlined in the SEC’s 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 SEC seeks permanent injunctions against each defendant, and disgorgement, prejudgment interest, and civil penalties against each defendant.
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For more information, contact:
Michele Wein Layne
Associate Regional Director, SEC’s Los Angeles Regional Office
Assistant Regional Director, SEC’s Los Angeles Regional Office
John M. McCoy, III
Regional Trial Counsel, SEC’s Los Angeles Regional Office