- SEC filed a settled complaint against investment advisory firm HITE Hedge Asset Management LLC (HITE) for short selling in violation of SEC Rule 105 of Regulation M.
- HITE allegedly purchased stock in public offering for 5 private fund clients after short selling the same stock, during a period when SEC Rule prohibited those purchases.
- Also named private funds that ultimately received profits from unlawful trading, HITE Hedge LP, HITE Hedge II LP, HITE Hedge Offshore Ltd., as relief defendants.
- SEC's complaint alleged that in May 2021, HITE violated Rule 105, which prohibits short selling equity security during restricted period before a covered public offering.
- Prohibits purchasing the same security in the covered offering, absent an exception.
- At the time of unlawful trading, HITE did not have formal written policies re Rule 105.
- SEC's complaint alleges that it was not until after beginning investigation into illegal trading that HITE Hedge Asset Management implemented written Rule 105 policy.
- After investigation, HITE conducted a review of its trading history to determine if other Rule 105 violations had occurred, and otherwise enhanced its compliance measures.
- SEC complaint charged HITE Hedge Asset Management with violation of SEC Rule 105 of Regulation M under the Securities Exchange Act of 1934, 17 CFR 242.105.
- HITE Hedge Asset Management agreed to pay $103k penalty to settle the charges.
- The three funds have agreed to disgorge the profits received from HITE Hedge Asset Management's unlawful trading, totaling $111,000, plus prejudgment interest.
- Without admitting or denying SEC's allegations, HITE Hedge LP has consented to the entry of a final judgment ordering it to disgorge profits of $18k, pay interest of $806.
- HITE Hedge II LP agreed to order to disgorge profits of $39k, pay interest of $1.7k.
- Also HITE Hedge Offshore Ltd. agreed to disgorge profits of $53k, interest of $2.3k.
- HITE Hedge Asset Management has also agreed to the entry of a related order in SEC administrative proceedings finding that it violated Rule 105, based on facts as alleged.
- Without admitting or denying SEC's findings in the order, HITE Hedge Asset Mgmt agreed to cease and desist from committing or causing violations of Rule 105.