EcoR1 Capital Fine Amount: €10,000,000 (€7M to EcoR1 Capital and €3M to Oleg Nodelman)
Date: 13 December 2024
Violation Period: October 10 -16, 2019
Primary Violation: Marking the Close
The French financial markets regulator (AMF) has imposed significant fines on San Francisco-based investment fund EcoR1 Capital and its director Oleg Nodelman for manipulating share prices during Innate Pharma's Nasdaq IPO in October 2019. The firm was found to have deliberately influenced the closing prices of Innate Pharma shares on Euronext Paris to affect the pricing of American Depositary Shares (ADSs) during the company's US listing.
The manipulation centered around a five-day pricing period used to determine Innate Pharma's ADS subscription price for its Nasdaq listing. The scheme worked as follows:
The ADS pricing mechanism was based on the weighted average of Innate Pharma's closing prices on Euronext Paris over five specific trading sessions.
During these critical sessions (October 10-16, 2019), EcoR1:
Sold large volumes of Innate Pharma shares on Euronext Paris.
Concentrated significant selling activity during market closing periods.
Subsequently became the largest subscriber of Innate Pharma ADSs on Nasdaq.
The investigation found that EcoR1's trading patterns demonstrated:
Strategic timing of large sell orders near market close.
Consistent downward pressure on share prices.
A clear pattern of price impact during the reference period.
The investigation revealed specific patterns in EcoR1's closing auction participation across the five-day reference period:
Volume Concentration:
EcoR1's sales represented between 20.44% and 61.86% of all trading volume during closing auctions.
On October 15, 2019, EcoR1 dominated the closing auction with 61.86% of total. closing volume.
The firm's closing auction participation averaged 31.91% across all five sessions.
Order Characteristics:
EcoR1 consistently placed large sell orders with limit prices significantly below prevailing market prices.
Order sizes (300,000-500,000 shares) exceeded the market's typical daily trading volume (average 254,142 shares).
These orders were often too large to be fully executed during continuous trading, ensuring significant volume would remain for the closing auction.
Price Impact Strategy:
The firm modified order limits late in the trading session.
For example, on October 16, 2019, EcoR1 lowered its limit price twice (at 17:24 and 17:28) just before the 17:30 closing auction.
These modifications ensured their orders would continue executing at progressively lower prices during the auction.
The closing price typically settled near EcoR1's limit prices.
Pattern Across Sessions:
October 10: 29.76% of closing auction volume.
October 11: 20.44% of closing auction volume.
October 14: 25.21% of closing auction volume.
October 15: 61.86% of closing auction volume.
October 16: 27.16% of closing auction volume.
The AMF found this activity particularly concerning as the closing prices directly impacted the Nasdaq IPO pricing, and the pattern was consistent across all five reference sessions.
The AMF Enforcement Committee imposed:
€7,000,000 fine on EcoR1 Capital for price manipulation and reporting violations.
€3,000,000 fine on Oleg Nodelman for his role in the manipulation.
Mandatory publication of the decision.
On Trading Strategy: "EcoR1 has, at several times, readjusted downward the limit price of some of its orders when the current price was about to cross below the limit price initially stated in these orders, such readjustment giving rise to other aggressive sales over the rest of the ongoing session."
On Market Impact: "The decrease in the Innate Pharma share price during the October 10-16, 2019 sessions had the effect of reducing the scale of the capital increase targeted by Innate Pharma on the occasion of its introduction on the Nasdaq, which is likely to have caused it prejudice."
On Position Reporting: "These threshold crossings should have been declared to the AMF within four trading days... These failures resulted, in particular, from a deficient internal control system. The gravity of this omission is reinforced by the fact that the sales of October 11, 2019, were carried out during the reference period."