The Blotter: FXDD fined $2.74 million by CFTC

SEC charges multiple firms with short selling violations

Specifically, the CFTC finds that Foremost failed to supervise diligently its officers’, employees’, and agents’ handling of accounts held by clients that were referred to Foremost from three unregistered entities that sold futures trading systems (the Systems Providers). Foremost’s officers, employees, and agents ignored warning signs that the Systems Providers were procuring their clients through fraudulent means and engaging in fraudulent business practices. 

Foremost’s personnel received complaints and information from clients about the apparently fraudulent misrepresentations made by the Systems Providers and the unscrupulous business practices in which the Systems Providers were engaged, but failed to fully investigate all these claims or inform clients or prospective clients about these claims, the Order finds.  Foremost continued to open accounts for clients referred by the Systems Providers, and additionally, on numerous occasions, Foremost vouched for the Systems Providers’ track records in conversations and correspondence with clients, according to the CFTC.  

SEC charges 23 Firms with short selling violations

The Securities and Exchange Commission (SEC) took enforcement actions against 23 firms for short selling violations as the agency increases its focus on preventing firms from improperly participating in public stock offerings after selling short those same stocks. Such violations typically result in illicit profits for the firms. The enforcement actions are being settled by 22 of the 23 firms charged, resulting in more than $14.4 million in monetary sanctions. 

The SEC’s Rule 105 of Regulation M prohibits the short sale of an equity security during a restricted period – generally five business days before a public offering – and the purchase of that same security through the offering. The rule applies regardless of the trader’s intent, and promotes offering prices that are set by natural forces of supply and demand rather than manipulative activity. The rule therefore helps prevent short selling that can reduce offering proceeds received by companies by artificially depressing the market price shortly before the company prices its public offering.

The firms charged in these cases allegedly bought offered shares from an underwriter, broker, or dealer participating in a follow-on public offering after having sold short the same security during the restricted period.

In a litigated administrative proceeding against G-2 Trading LLC, the SEC’s Division of Enforcement is alleging that the firm violated Rule 105 in connection with transactions in the securities of three companies, resulting in profits of more than $13,000.  The Enforcement Division is seeking full disgorgement of the trading profits, prejudgment interest, penalties, and other relief as appropriate and in the public interest. The SEC charged the following firms in this series of settled enforcement actions:

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