Fine Amount: $2.54M
Date: 15 January 2025
Violation Period: January 2018 to March 2024
Primary Violation: Insider Trading
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.
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:
Underwriting firms shared confidential information about upcoming follow-on offerings with the broker-dealer firm as part of the selling syndicate.
Two registered representatives at the broker-dealer shared this information with traders.
The traders then short sold the stocks before the offerings were announced.
After the public announcements caused stock prices to fall, the traders covered their positions at a profit.
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):
8:54 AM: Representative received offering information from an underwriter.
11:45 AM: Representative called trader.
11:47 AM: Trader short sold 3,000 shares at $0.72-0.75.
February 8: Trader covered position at $0.54-0.55, profiting $831.10.
10:36 PM: TIVC announced 20 million share offering at $0.25
"The Brokerage Firm's rules prohibited employees from disclosing material, nonpublic information to outside parties without specific authorization."
"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."
"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."