The Morning Brief: Omega One of Six Firms Fined by SEC in Enforcement Action

Leon Cooperman’s Omega Advisors was one of six investment advisors fined by the Securities and Exchange Commission in enforcement actions related to a violation of a short selling rule. The firms were accused of violating Rule 105 of Regulation M, which prohibits short-selling a stock within five business days of participating in an offering for that same stock.

This is the regulator’s third wave of actions since its Rule 105 Initiative was first announced in 2013. The SEC claims the number of Rule 105 violations decreased by 90 percent in the first fiscal year after the crackdown was announced. Although the amount of the fines is not large, the SEC took a zero-tolerance approach to enforcing the rule, which it claims reduces the proceeds for a company doing the stock offering by artificially depressing the market price shortly before the company prices the stock. Altogether, the six firms charged on Wednesday agreed to pay a combined total of more than $2.5 million in disgorgement, interest, and penalties — not a big sum for these firms.

In any case, New York-based Omega agreed to pay disgorgement of $68,340, prejudgment interest of $686.58, and a penalty of $65,000.

The fines were far heftier for others. New York-based J.P. Morgan Investment Management, which has $1.15 trillion in assets under management, agreed to pay fines totaling more than $1 million. Spanish firm Auriga Global Investors, Sociedad de Valores S.A. agreed to pay fines totaling nearly $619,000.00. New York-based private equity firm War Chest Capital Partners will pay fines of approximately $352,000. Upper Saddle River, New Jersey-based Sabby Management, which has $800 million under management, agreed to pay fines totaling approximately $279,000.

San Francisco-based Harvest Capital Strategies, which has $2.2 billion in alternative assets under management and focuses on long-short equity hedge funds, middle-market lending and private equity, faces the lowest penalties, having agreed to pay fines totaling approximately $84,000.

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William Ackman’s Pershing Square Holdings is staging a strong rally this month, posting a gain of 3.6 percent through October 13. This trimmed its loss for the year to 9.4 percent. It is managed by Ackman’s New York-based Pershing Square Capital Management.

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Sandell Asset Management filed a preliminary proxy statement as it launches its campaign to elect its slate of candidates to the board of directors of Ethan Allen. In a press release, the New York activist manager said it took this step after Sandell’s recent attempts to reach an amicable resolution with the company were rejected by chairman, CEO and president Farooq Kathwari.

“Kathwari seems to be content with using the Company’s stockholders’ money to forestall our efforts to bring about much-needed change at Ethan Allen,” states Tom Sandell, CEO of Sandell Asset Management, in a statement. He added he was particularly disturbed that Kathwari reportedly said: “We run [Ethan Allen] like a private company.” Sandell then goes on to repeat earlier assertions that the company and its stock have been underperforming.

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Raging Capital Management raised its stake in EZchip Semiconductor and called on the company to renegotiate its recently agreed-upon acquisition by Mellanox Technogies or to look for a new buyer. The Rocky Hill, New Jersey-based hedge fund firm asserts in a regulatory filing that EZchip, a semiconductor company, did not implement “a robust and rigorous sale process” when it accepted a $25.50 per share price, adding that the deal undervalues the company and its prospects. The hedge fund firm calls on the company to negotiate “a materially higher sale price with Mellanox” or other potential acquisition candidates or refrain from selling the business. Raging Capital also informs the company it plans to vote against the deal and is “evaluating all options” with respect to their investment.

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Third Point Ventures, the venture capital arm of Daniel Loeb’s New York-based Third Point, led a $25 million Series B round of financing for SentinelOne, a security company, according to a press release. Several existing investors also participated in the deal, including New York-based Tiger Global Management. SentinelOne said it plans to use the proceeds to “further disrupt the multi-billion dollar anti-virus (AV) market.”

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Hedge fund favorite JD.com, particularly admired by the Tiger Cubs, fell more than 5 percent on Wednesday as investors become increasingly concerned that companies like the Chinese online direct sales company could be hurt by an overall slowdown in the Chinese economy. At the end of the second quarter, Tiger Global and Greenwich, Connecticut-based Lone Pine Capital were the second and third largest shareholders, while Greenwich-based Coatue Management was the tenth largest shareholder. The stock also was the second largest holding of Josh Resnick’s New York-based Jericho Capital Asset Management.

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Baltimore-based quantitative investing specialist Campbell & Company announced it has opened an office in New York City. The firm manages $5 billion.

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