Oaktree, Others Settle Charges
Los Angeles-based Oaktree Capital Management and two other hedge fund advisors settled charges that they engaged in improper “short selling” trading tactics, the Securities and Exchange Commission said Thursday.
The cases center on alleged violations of an SEC rule that prohibits what the agency considers potentially manipulative trading of a stock just before a company issues more shares to the public via a so-called secondary offering.
SEC officials said the trading strategies had become an area of particular focus.
“We’re concerned that it may have been a widespread practice,” said Peter Bresnan, associate director of the SEC’s Division of Enforcement, adding that this week’s cases were meant to serve as “a wake-up call.”
The largest settlement Thursday was with New York-based Galleon Management, which agreed to disgorge $1,040,882 in profit and pay a $870,247 civil penalty.
Oaktree agreed to disgorge $169,773 in profit and pay a penalty of the same amount.
DB Investment Managers of Summit, N.J. said it would disgorge $15,585 in profit and pay a penalty of the same sum.
In reaching their settlements the companies didn’t admit or deny the allegations.
The SEC said the cases involved trading of 17 stocks by Galleon, four by Oaktree and three by DB Investment Managers, all since 2000.
The SEC had brought a similar case on Wednesday against a former hedge fund manager in New York.
The strategies involved shorting a stock -- borrowing shares and selling them -- within five days of a secondary stock sale by the company. The SEC forbids traders from shorting stocks with the expectation that they can cover their position (repay the loan) with lower-priced shares received in the stock offering.
Such trading tactics can depress the price a company receives in its offering and hurt other investors in the shares, the SEC said.
Steven Thomas, an attorney representing Oaktree, said the trades were “a few isolated cases,” and that the company “did not find that [its traders] intentionally violated the rule.”
Oaktree, founded 10 years ago, is a major investor in junk bonds and private equity, and manages a total of about $27 billion for big investors.
Thomas said the SEC fine was the first Oaktree had paid in its history.
Galleon Management’s attorney declined to comment. Rohini Pragasam, a spokeswoman for Deutsche Bank, parent of DB Investment Managers, said, “We’re pleased to have resolved this matter.”
Each of the firms agreed to adopt and implement written policies and procedures to prevent such violations, review them annually and make sure their chief compliance officers administers the procedures.
