Two high profile firms settled civil charges in connection with a Securities and Exchange Commission rule prohibiting short selling of stock during a restricted period prior to a public offering and then purchasing the same securities in the offering.
Level Global agreed to pay more than $3.2 million in disgorgement, prejudgment interest and a civil penalty while Brookside Capital agreed to pay more than $2 million to settle the charges.
Both firms also agreed to cease and desist from committing or causing any violations and any future violations.
The latter is moot for Level Global, which in February announced plans to wind down its operations and fully liquidate its funds portfolios. It had been raided by Federal investigators last November as part of a widespread probe into insider trading.
Level Global was co-founded in 2003 by David Ganek and Anthony Chiasson, both of whom had previously worked for Steve Cohens SAC Capital. At year-end 2010, Level Global had $3.7 billion of assets under management in its Level Global Overseas Master Fund, Ltd. and Level Radar Master Fund, Ltd.
At the end of 2009, Brookside, part of Bain & Co, had about $11.2 billion in assets under management.
The SEC said Brookside violated Rule 105 of Regulation M in June 2009 when it sold short during a restricted period preceding its participation in a public offering by Lincoln National Corp., resulting in profits of $1,658,660.
Level Global violated Rule 105 in April 2009 when it sold short in advance of participating in a public offering by Goldman Sachs Group, resulting in profits of $298,415. Then in May 2009 it committed a similar infraction when participating in a public offering by Regions Financial, resulting in profits of $2,381,100. Altogether, Level Global made $2,679,515.
The SEC said neither Brookside nor Level Global had policies, procedures or controls in place designed to detect or prevent Rule 105 violations.