WASHINGTON, May 9 (Reuters) - Hedge fund Amaranth Advisors LLC has agreed to pay $716,819 to settle charges that it unlawfully sold securities short in offerings and then covered those positions with securities bought in the offerings, the U.S. Securities and Exchange Commission said on Wednesday.
Amaranth agreed to pay a $150,000 civil penalty, $507,627 in disgorgement and $59,192 in prejudgment interest without admitting or denying the charges, the SEC said.
Greenwich, Connecticut-based Amaranth made headlines last year in losing $6.4 billion on a series of bad bets in the natural gas market, one of the biggest-ever hedge fund meltdowns.
The SEC said that in connection with five follow-on offerings conducted between November 2004 and February 2005, Amaranth sold securities short during the five business days before the pricing of those offerings.
The hedge fund then covered the short positions with securities bought in the offering in violation of federal securities laws, the SEC said.
Amaranth said in a letter to its investors on Wednesday that the settlement is unrelated to the fund’s natural gas trading or the events in September.
“The trades that are the subject of the settlement represent a variety of trading errors or misunderstandings of the application of the rule,” said the letter from Amaranth Group Chief Executive Nick Maounis.
Short sellers borrow shares of stock they see as over valued, sell them and wait for the price to fall. If it does, they buy back the shares, return them and pocket as profit the spread between the sale price and the covering buy-back price.
Short-selling is a legitimate style of investing often used by hedge funds, but securities laws ban a person from covering a short sale with offered securities brought from an underwriter or broker or dealer participating in an offering during the five business days before the offering prices.
The SEC said Amaranth's trades involved offerings by Coeur D'Alene Mines Corp. CDE.N, Catapult Communications Corp. CATT.O, Cleco Corp. CNL.N, MEMC Electronic Materials Inc. WFR.N, and American Superconductor Corp. AMSC.O.
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