By Sarah N. Lynch
WASHINGTON, March 5 A New York proprietary
trading firm and its owner will pay $7.2 million to settle civil
charges in what U.S. regulators said on Wednesday marks the
largest sanction they have ever imposed for certain
Long Island-based Worldwide Capital Inc and its sole owner,
Jeffrey Lynn, are settling the case without admitting or denying
the charges, the Securities and Exchange Commission said.
According to the SEC order, Lynn and his firm violated Rule
105 of "Regulation M," which prohibits a trader from shorting
stock prior to a public offering, and then subsequently buying
that same stock through the offering.
Lynn's defense attorney, Ira Lee Sorkin, declined to
The SEC's Rule 105 is designed to protect against potential
market manipulation; however, the SEC does not need to prove a
defendant intended to violate the rule in order to bring
The SEC has been cracking down on Regulation M violations
over the past year.
On March 1, SEC examiners also launched a new high-tech data
program that will, among other things, help the SEC better
detect violations of Regulation M, as well as more serious
offenses like insider trading.
In the Lynn case, the SEC said he and his trading shop
participated in 60 different offerings from October 2007 through
February 2012 by shorting shares during the restricted periods
and then purchasing those shares in the offering.
Typically, the restricted period lasts for five business
days before a public deal.
As a result of the trades, the SEC said Lynn and Worldwide
reaped ill-gotten gains of more than $8.4 million. About half of
that amount was paid out to individual traders who had
facilitated the short sales, and Lynn and his firm kept the
Under the terms of the settlement with the SEC, Worldwide
and Lynn will pay back the roughly $4.2 million in ill-gotten
gains, plus a $2.5 million penalty and more than $500,000 in