U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19607 / March 14, 2006
SEC v. Langley Partners, L.P., North Olmsted Partners, L.P., Quantico Partners, L.P., and Jeffrey Thorp, Civil Action No. 1:06CV00467 (JDB) (D.D.C.)
SEC Files Enforcement Action Against Hedge Fund Manager Jeffrey Thorp and Three Hedge Funds for Engaging In Illegal "Pipe" Trading Scheme
Defendants Consent to Permanent Injunctions and Agree to Pay $15.8 Million to Settle Charges
The Securities and Exchange Commission filed securities fraud and related charges today against three New York-based hedge funds, Langley Partners, North Olmsted Partners and Quantico Partners (collectively, "Langley Partners"), and their portfolio manager, Jeffrey Thorp, in the U.S. District Court for the District of Columbia. Langley Partners and Thorp agreed to settle the Commission's charges that they perpetrated an illegal trading scheme to evade the registration requirements of the federal securities laws in connection with twenty-three unregistered securities offerings, that are commonly referred to as "PIPEs" (Private Investment in Public Equity), and engaged in insider trading. As part of the settlement, Langley Partners will disgorge $8.8 million in ill-gotten gains and prejudgment interest, and Langley Partners and Thorp will pay civil penalties totaling $7 million.
The Commission alleges in its complaint that Langley Partners and Thorp, after agreeing to invest in a PIPE transaction, typically sold short the issuer's stock, frequently through "naked" short sales in Canada. Among other things, the Commission's complaint alleges that:
To settle the Commission's charges, without admitting or denying the allegations in the complaint, Langley Partners and Thorp consented to the entry of a final judgment permanently enjoining them from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 5 and 17(a) of the Securities Act of 1933. In addition, the final judgment orders Langley Partners, North Olmsted Partners and Quantico Partners to pay, jointly and severally, disgorgement of $7,048,528, prejudgment interest of $1,769,400, and a civil penalty totaling $4,700,000. The final judgment also requires Thorp to pay a $2,300,000 civil penalty.
The Commission acknowledges the assistance of the Investment Dealers Association of Canada. The Commission's investigation is continuing.