Labor & Employment Law

SEC settles Illegal Short Selling charges involving two Boca Raton men

By Dobin & Jenks

In a May 11 announcement, the Securities and Exchange Commission (SEC) stated it had charged two South Florida men for engaging in the unlawful selling of securities. The SEC alleges that Boca Raton, Fla. residents Leonard J. Adams and Peter G. Grabler participated in numerous secondary offerings in order to profit illicitly. Although neither admitted nor denied the allegations, Adams and Grabler agreed to pay a combined total of over $1.5 million to settle the SEC?s charges.

The SEC indicated that the unlawful short selling occurred between 2006 and 2008 while Adams and Grabler were living in Massachusetts. The SEC further alleged that the two men operated separately yet used 84 brokerage accounts to engage in dozens of unlawful trades. According to the agency, their actions were in violation of Rule 105 of the agency?s Regulation M.

Designed to help prevent abusive tactics such as market scheming and short selling, Rule 105 of Regulation M ensures that offering prices are not determined by manipulative activity, but instead by the ?natural forces? of supply and demand. According to the SEC, short selling before an offering has the potential to artificially depress the market price of shares.

The SEC stated that its enforcement action against Adams and Grabler was the first of its kind for non-securities industry individuals. David P. Bergers, Director of the SEC's Boston Regional Office, made this statement about the matter:

"Rule 105 applies just as much to individuals trading in their own accounts as it does to investment advisers and their related funds, which have been the subject of prior SEC enforcement actions. Grabler and Adams engaged in a trading strategy that by its very nature violates the SEC's rules."

SEC settles stock-shorting charges for $1.5 million ? Reuters