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Millennium Settles SEC Short-Selling Charges

The New York hedge fund will pay a penalty to settle the SEC’s charges that it violated Rule 105 in 2012.

  • Alicia McElhaney

Hedge fund Millennium Management has agreed to pay about $639,000 to settle charges from the Securities and Exchange Commission that it illegally profited by violating a short-selling rule, according to an SEC statement Tuesday.

The SEC said the New York-based firm violated Rule 105, which prohibits firms from shorting a company’s stock and then purchasing that company’s shares in a public offering within five days of the short. The regulator alleged that Millennium violated the rule four times in 2012, reaping $286,889 in illicit profits.

“Millennium established and maintained certain accounts that improperly participated in public offerings despite other firm accounts being short the relevant securities,” Sanjay Wadhwa, senior associate director of the SEC’s New York regional office, said in the statement.

The SEC disclosed in a cease-and-desist order against Millennium that the hedge fund violated the rule when it profited by purchasing shares in stock offerings by Raymond James Financial, Capital One Financial Corp., Susser Holdings Corp. and Charter Communications.

[II Deep Dive: Hedge Funds Should Beware of Rule 105]

Millennium has agreed to cease and desist from violating Rule 105 without admitting or denying the SEC’s findings. As part of the settlement, the SEC ordered the firm to pay a total of $638,709, including $286,889 in disgorgement, $51,820 of interest and a $300,000 penalty.

A spokesperson for Millennium declined to comment.

Millennium, founded by billionaire Israel (Izzy) Englander, has $35 billion of assets under management, according to its website. The firm had strong performance during the third quarter, with its main funds gaining about 3 percent, Institutional Investor’s Alpha reported this month.

“We will continue to actively surveil for, and charge, violations of Rule 105 where appropriate,” Wadhwa said in the SEC’s statement.

In 2013, the SEC announced that it charged 23 firms for violating the rule, including D.E. Shaw & Co. and Deerfield Management Co. The following year, the regulator said it sanctioned 19 firms for short-selling violations ahead of stock offerings.