SEC Charges Investment Adviser Hite Hedge Asset Management LLC with Violating a Trading Rule
Litigation Release No. 25643 / February 21, 2023
Securities and Exchange Commission v. HITE Hedge Asset Management LLC et al., No. 1:23-cv-10351 (D. Mass. filed Feb. 17, 2023)
The Securities and Exchange Commission on February 17, 2023 filed a settled complaint in the United States District Court for the District of Massachusetts against investment advisory firm HITE Hedge Asset Management LLC for violating an SEC Rule by purchasing stock in a public offering for five private fund clients after selling short the same stock, during a period when the SEC Rule prohibited those purchases. The complaint also names the three private funds that ultimately received the profits from HITE Hedge Asset Management's unlawful trading, HITE Hedge LP, HITE Hedge II LP, and HITE Hedge Offshore Ltd., as relief defendants. HITE Hedge Asset Management has agreed to pay a $103,591 penalty to settle the charges. The three funds have agreed to disgorge the profits received from HITE Hedge Asset Management's unlawful trading, totaling approximately $111,000, plus prejudgment interest. The settlement is subject to court approval.
The SEC's complaint alleges that in May 2021 HITE Hedge Asset Management violated Rule 105, which prohibits short selling an equity security during a restricted period (generally five business days before a covered public offering) and then purchasing the same security in the covered offering, absent an exception. The Rule applies regardless of the trader's intent, and is designed to prevent potentially manipulative short selling before the pricing of covered offerings.
According to the SEC's complaint, at the time of its unlawful trading, HITE Hedge Asset Management did not have any formal written policies relating to Rule 105. The SEC's complaint alleges that it was not until after the SEC began its investigation into the illegal trading that HITE Hedge Asset Management implemented a written Rule 105 policy, conducted a review of its trading history to determine if other Rule 105 violations had occurred, and otherwise enhanced its compliance measures.
The SEC's complaint charges HITE Hedge Asset Management with violating Rule 105 of Regulation M under the Securities Exchange Act of 1934. Without admitting or denying the allegations in the SEC's complaint, HITE Hedge Asset Management consented to the entry of a final judgment ordering it to pay a penalty of $103,591. Without admitting or denying the SEC's allegations, HITE Hedge LP has consented to the entry of a final judgment ordering it to disgorge profits of $18,236 and pay interest of $806, HITE Hedge II LP has agreed to the entry of a final judgment ordering it to disgorge profits of $39,975 and pay interest of $1,768, and HITE Hedge Offshore Ltd. has agreed to the entry of a final judgment ordering it to disgorge profits of $53,417 and pay interest of $2,362. HITE Hedge Asset Management has also agreed to the entry of a related order in SEC administrative proceedings finding that it violated Rule 105, based on the same facts as alleged in the complaint. Without admitting or denying the SEC's findings in the order, HITE Hedge Asset Management agreed to cease and desist from committing or causing violations of Rule 105.
The SEC's investigation was conducted by Anne Hancock, Dawn Edick, Chip Harper, and Amy Gwiazda of the Boston Regional Office, with assistance from Wendy Kong of the Office of Investigative and Market Analytics.