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 Long Island-based Worldwide Capital Inc and its sole owner, Jeffrey
Lynn, are settling the case without admitting or denying the
charges, the Securities and Exchange Commission said.
According to the SEC order, Lynn and his firm violated Rule 105 of
"Regulation M," which prohibits a trader from shorting stock prior
to a public offering, and then subsequently buying that same stock
through the offering.
Lynn's defense attorney, Ira Lee Sorkin, declined to comment.
The SEC's Rule 105 is designed to protect against potential market
manipulation; however, the SEC does not need to prove a defendant
intended to violate the rule in order to bring charges.
The SEC has been cracking down on Regulation M violations over the
past year.
On March 1, SEC examiners also launched a new high-tech data program
that will, among other things, help the SEC better detect violations
of Regulation M, as well as more serious offenses like insider
trading.
In the Lynn case, the SEC said he and his trading shop participated
in 60 different offerings from October 2007 through February 2012 by
shorting shares during the restricted periods and then purchasing
those shares in the offering.
Typically, the restricted period lasts for five business days before
a public deal.
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As a result of the trades, the SEC said Lynn and Worldwide reaped
ill-gotten gains of more than $8.4 million. About half of that
amount was paid out to individual traders who had facilitated the
short sales, and Lynn and his firm kept the rest.
Under the terms of the settlement with the SEC, Worldwide and Lynn
will pay back the roughly $4.2 million in ill-gotten gains, plus a
$2.5 million penalty and more than $500,000 in prejudgment interest.
(Reporting by Sarah N. Lynch; editing by
Andre Grenon and Dan Grebler)
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