U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22882 / December 3, 2013
Securities and Exchange Commission v. Charles Raymond Langston III, CRL Management, LLC, and Guarantee Reinsurance, Ltd, Civil Action No. 1:13-CV-24360
SEC Files Civil Injunctive Action Against Charles Raymond Langston III for Insider Trading and Rule 105 Violations
The Securities and Exchange Commission today charged a Miami-based trader with insider trading in the stock of a Chinese company and conducting illegal short sales in the securities of three other companies.
The SEC alleges that Charles Raymond Langston III learned confidential information in advance of a public announcement that significantly decreased the value of AutoChina International's stock. Langston was solicited by placement agents to invest in a secondary offering of AutoChina stock. Despite agreeing to keep information confidential and not trade on it, he promptly sold short 29,000 shares of AutoChina stock in advance of the company's public announcement that it had completed the secondary offering. To avoid detection, Langston made the trades through an entity he owned using a different broker and different account than he used to purchase shares in AutoChina's initial offering. Langston made $193,108 in illegal profits by trading on inside information.
The SEC complaint filed in federal court in Miami further alleges that Langston, and two of his companies, Guarantee Reinsurance and CRL Management, violated Rule 105 of Regulation M, which prohibits the short sale of an equity security during a restricted period - generally five business days before a public offering - and the purchase of that same security through the offering. The rule addresses illegal short selling that can reduce offering proceeds received by companies by artificially depressing the market price shortly before the company prices its public offering. The SEC alleges that Langston through Guarantee Reinsurance and CRL Management made short sales in advance of separate secondary offerings by Wells Fargo, Mitsubishi UFJ Financial Group, and Alcoa, and he purchased shares in the same offerings. Langston and his companies' violations of Rule 105 resulted in unlawful gains of more than $1.3 million.
The SEC's complaint charges Langston with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 by engaging in illegal insider trading. Langston has agreed to settle these charges, without admitting or denying the allegations, and he has agreed to pay disgorgement of $193,108, prejudgment interest of $22,204, and a civil money penalty of $193,108 for the insider trading violation. Langston, Guarantee Reinsurance, and CRL Management have also agreed to be enjoined from violating Rule 105 of Regulation M of the Exchange Act. Monetary sanctions against the defendants for the Rule 105 violations will be determined by the court at a later date.
In September, the SEC announced enforcement actions against 23 firms for Rule 105 violations as a part of a crackdown on potential stock manipulation in advance of stock offerings. The SEC's National Examination Program simultaneously issued a risk alert that highlights risks to firms from non-compliance with Rule 105.
The SEC's case against Langston and his companies was investigated by Andre J. Zamorano and Kathleen Strandell in the Miami office, and supervised by Thierry Olivier Desmet. The SEC's litigation will be led by Christopher E. Martin. The SEC acknowledges the assistance of the Financial Industry Regulatory Authority.