September 16, 2014 / 4:02 PM / 5 years ago

U.S. SEC imposes $9 million in sanctions for short-sale violations

WASHINGTON (Reuters) - Nineteen trading firms and one trader will pay $9 million to collectively settle civil charges alleging they participated in a stock offering after shorting the stock during a restricted period, U.S. regulators said Tuesday.

The BlackRock logo is seen outside of its offices in New York January 18, 2012. REUTERS/Shannon Stapleton

The Securities and Exchange Commission said the settlements mark the latest actions in an effort to crack down on hedge funds and private equity funds that violate a securities rule designed to prevent potential manipulation.

Among the charged firms settling the case are BlackRock’s BlackRock Institutional Trust Company and New York-based Advent Capital Management.

A spokesman for BlackRock said Tuesday that the SEC’s case stems from three “inadvertent” violations dating to 2010 and 2011.

“There was no allegation that BlackRock intentionally violated the rule,” the spokesman said. “Client accounts will not be affected and the company has further enhanced its compliance policies and procedures since 2011.”

Advent Capital did not have an immediate comment on the SEC’s case.

The rule at the heart of the SEC’s sweep is called Rule 105 of Regulation M. Rule 105 prohibits a trader from shorting stock prior to a public offering and then subsequently buying that same stock through the offering.

The SEC does not need to show a firm or individual intentionally violated the rule in order to bring a case.

Last year, the SEC brought similar cases against 23 firms and earlier this year it obtained a record sanction for a Rule 105 violation against a New York proprietary trading shop and its owner.

The SEC’s decision to focus on this area may reflect the “broken windows” enforcement philosophy that SEC Chair Mary Jo White announced last year.

That idea, which comes from the approach that former New York City Mayor Rudy Giuliani applied to his crackdown on crime in the city, calls for making sure small violations are addressed in an effort to deter more serious ones.

Reporting by Sarah N. Lynch; Editing by Bill Trott

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