Firm Fined $400,000 and Ordered to Pay More Than $500,000 in Disgorgement; Prohibited From Participating in Secondary Offerings for Six Months
The Financial Industry Regulatory Authority (FINRA) announced today that it has sanctioned First New York Securities L.L.C. $916,000 for short selling ahead of participating in 14 public offerings of securities, in violation of Rule 105 of Regulation M, and for related supervisory violations. FINRA ordered First New York to pay disgorgement of more than $516,000, plus interest, and fined the firm $400,000. Additionally, the firm is prohibited from participating in secondary or follow-on offerings for a period of six months.
Rule 105 of Regulation M under the Securities Exchange Act of 1934 generally prohibits buying securities in secondary offerings when the purchaser sold short the security that is the subject of the offering during a specific restricted period – typically five business days – before the secondary offering is priced.
Thomas Gira, FINRA Executive Vice President, Market Regulation, said, "Rule 105 of Regulation M is vital to ensuring the integrity and fairness of the offering process. Rule 105 violations, particularly recidivist violations as is the case with First New York, will be aggressively pursued by FINRA."
From September 2010 through April 2013, First New York sold securities short within the five business days leading up to the pricing of 14 public offerings in those securities, and then purchased securities in those offerings. First New York purchased a total of more than 670,000 shares after having sold short 187,060 shares of the securities within the five business days leading up to the offerings. FINRA previously sanctioned the firm in December 2008 for Regulation M Rule 105 violations and related supervisory failures.
In concluding this settlement, First New York neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
FINRA's investigation was conducted by the Department of Market Regulation.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2014, members of the public used this service to conduct 18.9 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database.
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