GLG Settles WITH SEC on Short Sales

GLG Partners Agrees to $3.2 Million Fine to Settle SEC Charges of Illegal Short Selling

London-based hedge fund GLG Partners LP will pay more than $3.2 million to settle charges that it made illegal stock trades in connection with 14 public offerings, the Securities and Exchange Commission said Tuesday.

The SEC said the company made more than $2.2 million in profits over a two-year period -- from July 2003 to May 2005 -- in illegal short sales.

Short selling involves borrowing stock from a broker and selling it immediately, with the hope of buying it back for a lower price and returning it to the broker. The profit is the difference between the price at which the stock was sold and the cost to buy it back, less any commissions and expenses.

The agency said GLG's actions violated the Securities and Exchange Act, which prohibits covering certain short sales with securities obtained from a public offering. Specifically, the law says companies may not sell such securities five business days prior to the pricing of a public offering because it could "artificially distort" the security's market value.

Although GLG did not admit or deny SEC's findings, the hedge fund agreed to a cease-and-desist order and to pay back more than $3.2 million, including profits gained, interest and civil penalties.

The company will also adopt and implement policies and procedures to comply with SEC rules, provide training to employees and designate a senior-level employee to oversee compliance.
"Foreign-based hedge funds that trade on the U.S. markets cannot turn a blind eye to compliance with the U.S. federal securities laws," Antonia Chion, associate director of SEC's enforcement division, said in a statement.

The agency's announcement comes a day after GLG said it will sell itself in a $3.4 billion reverse takeover with Freedom Acquisition Holdings Inc., a blank check company that is established to enter into a merger or acquisition.

The combined company will be called GLG partners and will trade on the New York Stock Exchange.

The deal, which is subject to Freedom shareholder and regulatory approval, is expected to close early in the fourth quarter.

Our take on this news: GLG got off quite easy. How about penalize them from doing business in the U.S. marketplace for awhile?