U.S. SECURITIES & EXCHANGE COMMISSION
Litigation Release No. 20361 / November 8, 2007
Securities and Exchange Commission v. Armstrong Capital Ltd., Bay Capital Investment Ltd., and Timothy M. Bliss, Civil Action No. 07-CV-09883 (SDNY) (JGK)
SEC SETTLES ENFORCEMENT ACTION AGAINST TWO OFFSHORE COMPANIES AND THEIR PRINCIPAL TRADER FOR VIOLATIONS OF RULE 105 FOR $1.8 MILLION
The Securities and Exchange Commission announced today that it filed a settled civil action in the United States District Court for the Southern District of New York against Armstrong Capital Ltd. and Bay Capital Investment Ltd., two offshore companies, and their owner and principal trader Timothy M. Bliss, charging them with violating Rule 105 of Regulation M. Rule 105, as in effect at the time of the conduct alleged in the complaint, prohibited covering a short sale with securities obtained in certain public offerings when the short sale occurred during a specific period (usually five business days) before the pricing of the offering.
The Commission’s complaint alleges that, from January 2004 through June 2006, Armstrong Capital, Bay Capital, and Bliss violated Rule 105 in connection with 57 public offerings by using shares purchased in those offerings to cover short sales made during the restricted period set by Rule 105. The complaint further alleges that in the offerings, the offering price was usually set at a discount to the last reported sale price of the stock before the pricing of the offering. As alleged in the complaint, by short selling just prior to pricing, Armstrong Capital and Bay Capital often sold shares short at prices higher than the price they would later pay for the shares in the offering.
By engaging in this conduct, the complaint alleges, the defendants significantly reduced their market risk of investing in public offerings and realized profits that totaled $1.263 million. Without admitting or denying the allegations in the complaint, Armstrong Capital, Bay Capital and Bliss have agreed to settle the Commission’s enforcement action by consenting to the entry of a final judgment that permanently enjoins them from future violations of Rule 105, and holds them jointly and severally liable to disgorge $1.47 million in trading profits and prejudgment interest, and to pay a $325,000 civil penalty.
The Commission acknowledges the assistance and cooperation of the National Association of Securities Dealers.