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A pair of advisory firms that didn’t disclose their relationship with activist short-sellers are being sanctioned in a settlement with the U.S. Securities and Exchange Commission (SEC).

The regulator settled charges against Dallas-based investment adviser Anson Funds Management LP and its Toronto-based affiliate, Anson Advisors Inc. The firms agreed to pay a combined US$2.25 million to settle allegations that they violated U.S. adviser rules by failing to disclose their work with publishers of articles that argued bearish cases for certain securities.

The SEC’s order stated that between 2018 and 2023, the Anson Investments Master Fund disclosed its strategy for taking short positions, but failed to disclose that the strategy included working with publishers of short reports and trading securities discussed in those reports.

That work included “paying a portion of [the fund’s] trading profits to the short publishers in exchange for the short publishers sharing their work with [the firms] in advance of posting it publicly.”

The regulator alleged that, by not disclosing this practice, the firms didn’t “clearly articulate” the fund’s short strategy, or the risks associated with the strategy — which, they alleged, violated the Advisers Act.

The SEC also alleged the firms violated recordkeeping requirements by improperly recording payments from the fund’s trading profits to an activist short-seller in connection with negative reports and tweets on a couple of securities. The payments were allegedly recorded as “research services.”

Without admitting or denying the allegations, the firms settled the case by agreeing to a cease-and-desist order, a censure and to monetary penalties. Anson Advisors agreed to pay US$1 million, and Anson Funds agreed to pay US$1.25 million.