You're right, both parties know about the secondary offering before it becomes public information. If they, or relatives, friends, contacts, act on it they are a prime target for an insider trading investigation. A secondary offering draws attention from compliance so it is watched heavily. Every time I buy something and news comes out a bit later that moves the price, my compliance department is right on top of it questioning me and wants proof that I found some supporting reason for my investment. So, shorting before a secondary would put some serious flags out there.
Not all secondary's are cause for alarm. There are several articles out on the internet about secondary offerings. Although I don't understand why Brad Loncar talks to AF like he is not a market manipulator, he has a good take on it here, especially his mention of RCPT: http://www.loncarblog.com/#!secondary-offerings/cee1
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