Baron Capital, Execs Settle With SEC

From Reuters

Money manager and stock picker Ron Baron, an investment firm he founded and two traders agreed to pay a total of $2.7 million to settle allegations they manipulated an energy company's stock in 1999, federal securities regulators said Tuesday.

The Securities and Exchange Commission alleged the New York fund manager, Baron Capital Group Inc., and two Baron traders -- David Schneider and Susan Blenke -- participated in efforts to influence the stock price of natural gas distributor Southern Union Co. in October 1999.

Without admitting wrongdoing, each of the defendants and the firm, a small- and mid-cap focused asset manager that runs four stock mutual funds, agreed to settle the allegations that they carried out a practice called "marking the close," or executing trades at the end of the day to influence a stock's closing price.

According to findings in an SEC administrative order, Baron instructed the two traders to execute trades of Southern stock at the end of each day during a 10-day pricing period in an effort to lift the average closing price, which later would be used in determining the terms of Southern's agreement to acquire utility Pennsylvania Enterprise Inc. in a cash and stock deal valued at $500 million.

Baron Capital said that it decided not to contest the SEC "after extensive discussions" with the SEC staff. "The firm believes that settling and concluding this matter is in the best interests of the firm and its clients," it said.

Attorneys for Baron and Schneider could not be reached for comment. Blenke's attorney did not have a comment.

The SEC alleged that Baron Capital had client accounts whose holdings were more than 10% of Southern's stock and was mindful of the 10-day average closing price in October 1999 because a higher average meant Southern shareholders had to pay less cash.

"The higher that average, the more favorable the pricing terms would be to SUG [Southern] and its existing shareholders," said Wayne Carlin, head of the SEC's New York office.

Baron allegedly told the two traders to buy Southern's stock, which was then trading at less than $20 a share, "at the end of the day" and "up in the twenties" at about $20.25 to $20.50 a share.

The average closing price of Southern's stock for the relevant pricing period was about $20.13 a share, compared with an average of $18.55 a share in the 10 days before the merger pricing period, according to the SEC findings.

An average price of less than $17.30 a share would have allowed Pennsylvania Enterprise to terminate the merger, the SEC said in the enforcement document. "Had this increase not occurred, SUG would have been required to pay millions of dollars more in cash to acquire PNT [Pennsylvania Enterprise]," Carlin said.

Baron Capital, according to the SEC administrative order, bought 529,750 Southern shares at an average price of $20.07 each during the critical pricing period.

As part of the cease-and-desist settlement, Baron Capital agreed to pay $2 million in civil penalties, and Ron Baron agreed to pay $500,000.

The SEC, which does not need to file civil lawsuits against broker-dealers to obtain civil penalties, said Schneider agreed to pay $125,000 and the SEC imposed a civil penalty of $75,000 against Blenke.

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