Trader to Pay $1 Million for Short Selling Violations

The Securities and Exchange Commission today announced that a trader residing in Canada has agreed to pay more than $1 million to settle charges that he shorted U.S. stocks in companies planning follow-on offerings and then illegally bought shares in the follow-on offerings to lock in significant profits with little to no market risk.

An SEC investigation found that Andrew L. Evans through his firm Maritime Asset Management violated an anti-manipulation provision of the federal securities laws known as Rule 105 on nearly a dozen occasions.  Rule 105 prohibits short selling an equity security during a restricted period (generally five business days before a public offering) and then purchasing that same security through the offering.  By purchasing lower-priced shares in the follow-on offerings that he could use to cover his short sales, Evans reaped $582,175 in illegal profits.

“Evans repeatedly gamed the system by short selling shares that he knew he could later obtain at a lower price,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “Rule 105 was specifically designed to prevent unfair and manipulative trading that erodes pricing integrity and the ability of issuers to effectively raise capital.”

According to the SEC’s complaint filed in U.S. District Court in San Francisco, Evans’s short selling violations occurred from December 2010 to May 2012.  The settlement, which is subject to court approval, requires Evans to pay disgorgement of $582,175, prejudgment interest of $63,424, and a penalty of $364,389 for a total of $1,009,988.  Without admitting or denying the allegations, Evans agreed to be permanently enjoined from violating Rule 105 in the future.

The SEC’s investigation was conducted by Robert J.  Durham and Erin E. Schneider of the San Francisco Regional Office.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.