The Securities and Exchange Commission filed a complaint for violating a SEC Rule against HITE Hedge Asset Management LLC. The complaint claims that HITE Hedge Asset Management bought stock for five clients of private funds in a public offer after short selling the stock. This was against the SEC rule at the time. HITE Hedge LP, HITE Hedge II LP, and HITE Hedge Offshore Ltd. – the three funds that benefited from the illegal trading – have therefore been named in the complaint as relief defendants.
HITE Hedge Asset Management agreed to pay $103,591 as a fine to settle these charges. The three funds also agreed to return the profits made from illegal trading totaling about $111,000 along with interest. The settlement still needs to be approved by the court.
In its complaint, the SEC states that HITE Hedge Asset Management in May 2021 violated Rule 105. Rule 105 forbids short-selling an equity security before a limited period of time, which is usually five days prior to an offering covered by the SEC, then buying the same stock in the offering. Unless there are exceptions, this rule prohibits it. This rule is intended to prevent short selling that may be manipulative before the pricing for covered offerings.
HITE Hedge Asset Management didn’t have any written formal policies about Rule 105 when the illegal trading took place. The firm did not implement a written Rule 105 Policy until the SEC launched its investigation into illegal trading. They also reviewed their trading history to look for other violations and improved compliance measures.
In its complaint, the SEC accuses HITE Hedge Asset Management of violating Rule 105 of Regulation M of the Securities Exchange Act of 1933. HITE Hedge Asset Management consented for a final judgement ordering it to pay $103,591 in penalties without admitting or disputing the allegations made in the complaint. HITE Hedge LP and HITE Hedge II LP have agreed to final judgements ordering them disgorge profits and paying interest.
HITE Hedge Asset Management also agreed to a similar order in SEC administrative proceeding, admitting its violation of Rule 105, and agreeing not to commit any further violations.
Anne Hancock of the Boston Regional Office conducted the SEC investigation, assisted by Dawn Edick, Chip Harper and Amy Gwiazda of Office of Investigative and Market Analytics.
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SEC
Securities Exchange Commission, or SEC for short, is the regulatory agency of the United States. It oversees and enforces securities laws. Its primary goal is to safeguard investors, ensure fair and efficient markets and facilitate capital creation. The SEC is responsible for requiring companies to provide important financial information, which ensures transparency and prevents fraudulent activities. It regulates exchanges and brokers as well, enforces the laws against insider trade and market manipulation and provides investors with educational resources. SEC seeks to encourage confidence in the market for securities and promote a level playing area for all participants through its regulatory efforts.
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