SEC Charges Broker-Dealers With Illicitly Profiting in Partial Tender Offer

The Securities and Exchange Commission today announced settled charges against two registered broker-dealers, Bluefin Trading LLC and Critical Trading LLC, for violating the so-called “short tender rule” and enriching themselves at the expense of other participants in a partial tender offer. 

According to the SEC’s orders, as part of a 2016 partial tender offer for the common stock of Lockheed Martin Corp., Bluefin and Critical each independently tendered more Lockheed shares than their net long positions in that security in violation of the short tender rule.  Because partial tender offers are for less than all of the outstanding shares of a security, if the tender offer is oversubscribed, the company accepts shares pro rata.  Here, Lockheed’s partial tender offer was oversubscribed, and the orders finds that, by tendering excess shares, Bluefin and Critical caused Lockheed to accept more shares from them and fewer shares from other participants.  The orders further find that Bluefin’s excess tender produced $223,836 in unlawful profits, while Critical’s produced $149,224.    

“The Commission’s short tender rule is designed to provide fairness for all participants in partial tender offers,” said Antonia Chion, Associate Director of the SEC’s Division of Enforcement.  “We will continue to police these opportunities where market participants can enrich themselves by gaining an unfair advantage at the expense of others.”

The SEC’s orders find that Bluefin and Critical willfully violated Rule 14e-4 under the Securities Exchange Act of 1934.  Without admitting or denying the SEC’s findings, Bluefin and Critical each have agreed to be censured and to cease and desist from future violations of Rule 14e-4.  Bluefin has also agreed to pay disgorgement and prejudgment interest totaling $253,638 and a $50,000 penalty, while Critical has agreed to pay disgorgement and prejudgment interest totaling $169,092 and a $50,000 penalty. 

The SEC’s investigation has been conducted by Peter Fielding with assistance from Stephen Glascoe, and supervised by Stacy Bogert and Ms. Chion.