Deals being done .........
REUTERS UPDATE 1-US SEC settles with hedge funds in PIPEs scheme [FWZYBTF]
(Adds details of alleged actions, lawyer no comment)
WASHINGTON, March 14 (Reuters) - Hedge fund manager Jeffrey Thorp and three New York-based hedge funds he manages have agreed to pay $15.8 million to settle charges they engaged in an illegal trading scheme to evade registration requirements with 23 securities offerings commonly referred to as "PIPEs," U.S. regulators said on Tuesday.
The U.S. Securities and Exchange Commission said the three hedge funds -- Langley Partners, North Olmsted Partners and Quantico Partners -- and their portfolio manager Thorp, agreed to the settlement without admitting or denying the charges.
An attorney for Thorp did not immediately return a call seeking comment.
Thorp and his funds reaped more than $7 million in ill-gotten gains from the illegal transactions between 2000 and 2002, the SEC's complaint said.
The penalties include $8.8 million in disgorgement and prejudgment interest and a civil penalty of $7 million.
The SEC said Thorp and the funds, after agreeing to invest in a PIPE, or Private Investment in Public Equity, transaction, typically sold the issuer's stock short. They frequently did so without having borrowed the stock first -- a practice known as "naked" short-selling -- in Canada.
A short sale is a bet that a company's stock price will decline. In many PIPE transactions buyers agree to pay a price below the open market stock value before the terms of the deal become publicly available.
In one instance, Langley bought 100,000 shares of MGI Pharma Inc. <MOGN.O> for $11 a share in a PIPE offering and immediately shorted the same number of shares at a public market price of about $13. Once the terms of the PIPE became effective, the fund effectively covered its own short with the $11 shares, pocketing a net profit of $235,500, the complaint said.
Thorp avoided detection using a variety of techniques to make it appear that he was covering his short sales with open market purchases, when in fact Thorp was on both sides of the trades, according to the complaint.
The SEC said his deceptive techniques included "wash sales" in which he got broker-dealers to register as market makers in a PIPE transaction. In such cases, Langley would sell the PIPE shares to the broker which then sold the same shares back to him.
(c) Reuters 2006. All rights reserved.
