Investment advisory firm HITE Hedge Asset Management and its private fund clients agreed to pay more than $220,000 to settle allegations the firm violated a Securities and Exchange Commission (SEC) rule concerning short selling.
In May 2021, traders at Massachusetts-based HITE Hedge Asset Management sold Pioneer Natural Resources stock within five business days of a public offering for the stock—known as a restricted period—then repurchased the stock during the offering, the SEC alleged. Short selling during a restricted period is a violation of SEC Rule 105, which is designed to prevent market manipulation.
At the time, HITE didn’t have any formal written policies about Rule 105, according to the SEC’s complaint filed Friday in U.S District Court for the District of Massachusetts. Instead, traders were required to obtain written approval from the chief compliance officer before they participated in public offerings. The CCO erroneously gave traders permission to participate in the trades “because he mistakenly believed that Rule 105 did not apply to the offering,” according to the complaint.
“Upon being informed of its purchase within Rule 105’s restricted period, HITE did not conduct a review of its prior trading history to identify other possible Rule 105 violations and did not implement a written Rule 105 policy or otherwise enhance its compliance measures related to Rule 105 at that time,” the SEC said.
Only after the agency began its investigation did the company create a written Rule 105 policy and enhance its compliance measures, the SEC said. HITE conducted a review and found no previous history of violating Rule 105, per the complaint.
“HITE also replaced its CCO in November 2021 and hired an additional compliance staff member in June 2022,” the complaint stated.
In addition to a $103,591 penalty agreed to by HITE Hedge Asset Management, three HITE private fund clients that allegedly received profits from the trades agreed to relinquish more than $111,000, plus approximately $5,000 interest, the SEC said.
HITE did not respond to a request for comment.
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