Sandell Asset Management Corp. may soon have the dubious distinction of becoming the first hedge fund to get punished by the Securities and Exchange Commission for naked shorting. The SEC staff is expected to recommend a civil action against the New York-based $4.5 billion firm for improperly trading in shares of Hibernia Corp., a New Orleans-based bank, in a case the agency has been tracking since the beginning of the year. News of the imminent legal action comes from investors who received a letter about the situation, Bloomberg News reports. Sandell, founded eight years ago by Bear Stearns alumnus Thomas Sandell, has grown 18% so far this year, compared with 9% for other event-driven funds and is said to be cooperating with the SEC, though the firm declined to comment. Meanwhile, shorting isn’t the only the hedge-related activity in the SEC’s crosshairs. The commission is investigating whether UBS had been improperly manipulating Treasury securities prices by possibly agreeing to requests by hedge funds and other investors to remove certain securities from the market to make the remaining positions more valuable.
