A Canadian trader has agreed to pay a penalty to more than US$1 million to after he was accused of engaging in manipulative trading, the Washington, D.C.-based U.S. Securities and Exchange Commission (SEC) announced on Tuesday.
The SEC accused Andrew Evans, a trader based in British Columbia, with shorting stocks in U.S. companies that were planning secondary offerings, and then illegally buying shares in those offerings to lock in profits with little market risk.
By purchasing lower-priced shares in the follow-on offerings that he could use to cover his short sales, the SEC alleged that Evans reaped $582,175 (U.S. dollars) in illegal profits.
Evans’ short selling violations occurred from December 2010 to May 2012, according to the SEC’s complaint filed in U.S. District Court in San Francisco.
The settlement, which is subject to court approval, requires Evans to pay disgorgement of US$582,175, prejudgment interest of US$63,424, and a penalty of US$364,389 for a total of US$1,009,988.
Evans agreed to settle the allegations without admitting or denying them, the SEC said.
The SEC’s investigation found that Evans, through his firm, Maritime Asset Management LLC, violated an anti-manipulation provision of the federal securities laws known as Rule 105 on nearly a dozen occasions. That rule prohibits short selling an equity security during a restricted period (generally five business days before a public offering) and then purchasing that same security through the same offering.
“Evans repeatedly gamed the system by short selling shares that he knew he could later obtain at a lower price,” said Jina Choi, director of the SEC’s San Francisco office. “Rule 105 was specifically designed to prevent unfair and manipulative trading that erodes pricing integrity and the ability of issuers to effectively raise capital.”
In addition to the monetary penalty, Evans agreed to be permanently enjoined from violating the rule in the future.