[In several instances, according to the SEC, the trader's short selling was directly contrary to representations that his firm made to PIPE issuers in connection with their transactions.
Stephen Taub, CFO.com April 25, 2005
Guillaume Pollet, a former managing director of SG Cowen Securities Corp., pleaded guilty to insider trading after he learned about a private-equity offering, according to wire-service reports. Under his plea agreement, Pollet faces between 18 and 24 months in prison, plus fines, according to The Wall Street Journal.
In addition, the Securities and Exchange Commission charged Guillaume with insider trading and fraud for short-selling the stock of 10 companies before they closed on private offerings of stock, including offerings in which SG Cowen invested. According to the SEC, Pollet was in charge of investing SG Cowen proprietary funds in PIPEs — private investment in public equity.
Specifically, the commission alleged that during 2001, Pollet routinely sold short the publicly traded securities of 10 public companies that either engaged in, or were considering engaging in, PIPE financings after receiving confidential non-public information about the upcoming transaction, in order to secure gains for SG Cowen's proprietary account.
As a result, added the commission, SG Cowen locked in more than $4 million in trading profits in addition to other gains it made on the transactions. In several instances, SG Cowen also acted as the PIPE issuer's investment banker.
Further, alleged the commission, in several instances Pollet's short selling was directly contrary to representations that SG Cowen made to PIPE issuers in connection with their transactions.
"While PIPE transactions may help a company meet its financing needs, they also create opportunities for fraud," said Mark K. Schonfeld, director of the SEC's Northeast Regional Office, in a statement. "This case sends the message that we will actively patrol this area so that issuers and investors alike can have confidence in these financing vehicles."