Quick facts
Fine Overview
The Securities and Exchange Commission (SEC) has filed charges against the defendants for their involvement in a fraudulent scheme involving confidential information about follow-on offerings. The scheme, which operated from January 2018 to March 2024, centered around broker-dealer representatives improperly sharing material non-public information about upcoming follow-on offerings with traders who then profited from short-selling the affected securities.
Details of the Fine
The case reveals a quid pro quo arrangement where registered representatives at a broker-dealer firm provided advance information about follow-on offerings to traders. The scheme worked as follows:
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Underwriting firms shared confidential information about upcoming follow-on offerings with the broker-dealer firm as part of the selling syndicate.
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Two registered representatives at the broker-dealer shared this information with traders.
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The traders then short sold the stocks before the offerings were announced.
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After the public announcements caused stock prices to fall, the traders covered their positions at a profit.
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In exchange, the traders agreed to buy shares in offerings where the broker-dealer was part of the selling syndicate, generating sales credits.
Specific examples from the case: On February 7, 2023, regarding Tivic Health Systems Inc. (TIVC):
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8:54 AM: Representative received offering information from an underwriter.
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11:45 AM: Representative called trader.
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11:47 AM: Trader short sold 3,000 shares at $0.72-0.75.
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February 8: Trader covered position at $0.54-0.55, profiting $831.10.
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10:36 PM: TIVC announced 20 million share offering at $0.25
Select Quotes
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"The Brokerage Firm's rules prohibited employees from disclosing material, nonpublic information to outside parties without specific authorization."
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"Securities professionals and experienced traders know that when such information is disclosed in connection with marketing a prospective offering, it is generally accompanied by a confidentiality agreement pursuant to which the recipient of the information agrees not to use the information for any reason other than determining whether to purchase securities in the offering."
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"Before an issuer publicly announces an offering, information about the offering, including its timing and price, is highly confidential. The misuse or improper disclosure of such material, non-public information can result in significant harm to the issuer, its shareholders, and the integrity of the securities markets."
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