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SEC charges Weiss Asset Management with short selling violations

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Investment advisory firm Weiss Asset Management has agreed to pay approximately $6.9 million to settle US Securities and Exchange Commission (SEC) charges that it violated federal securities laws when it unlawfully purchased stock in seven public offerings after selling short those same stocks.

The SEC’s order finds that, on seven occasions between December 2020 and February 2021, Weiss 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 through the offering, absent an exception. The rule applies regardless of the trader’s intent and promotes offering prices that are set by natural forces of supply and demand rather than potentially manipulative activity.

According to the order, Weiss Asset Management’s violations occurred because it repeatedly miscalculated the restricted period and dismissed a number of red flags raised by its internal controls that suggested possible violations of Rule 105. The order finds that Weiss Asset Management improperly benefited by participating in offerings covered by Rule 105, resulting in ill-gotten gains totaling over $6.5 million. 

Weiss Asset Management has agreed to disgorge profits of $6,508,793 and to pay interest of $190,211 and a penalty of $200,000. Without admitting or denying the findings in the SEC’s order, Weiss Asset Management has agreed to cease and desist from violating Rule 105 in the future.

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