Weiss Asset Management reached a $6.9 million settlement with the Securities and Exchange Commission (SEC) on Tuesday after it self-reported alleged short selling violations. The firm was lauded by the agency for “significant” improvements to its compliance efforts since undertaken.

Weiss, a Boston-based registered investment adviser with nearly $8 billion in assets under management, agreed to settle charges it violated federal securities laws when it “unlawfully purchased stock in seven public offerings after selling short those same stocks,” according to an SEC press release.

Between December 2020 and February 2021, Weiss allegedly violated securities laws prohibiting short selling an equity security during a restricted period, then purchasing the same security through a public offering, according to the SEC’s order.

“In each instance, the short sales occurred prior to the filing of a prospectus supplement to a previously filed shelf registration statement but during the five business days that preceded the pricing,” the order stated. “In offerings conducted pursuant to a prospectus supplement to a previously filed shelf registration statement, the ‘initial filing’ … is the shelf registration statement, not the prospectus supplement to that registration statement.”

At the time of each violation, Weiss’s internal controls correctly flagged the offerings, according to the order, but its legal personnel repeatedly miscalculated the restricted period as commencing after the short sales. Its compliance personnel, in turn, incorrectly dismissed red flags raised, per the order.

As a result of the alleged misconduct, Weiss improperly benefited by participating in the offerings, resulting in ill-gotten gains totaling more than $6.5 million. Without admitting or denying the SEC’s findings, Weiss agreed to a cease-and-desist order; to disgorge profits of $6,508,793; to pay interest of $190,211; and to a penalty of $200,000.

Compliance enhancements: Weiss engaged in a handful of remedial steps, according to the SEC, including:

  • Conducting a more than five-year review of its trading record;
  • Identifying all seven alleged violations at issue;
  • Segregating and booking a reserve of the profits;
  • Conducting training for its staff;
  • Updating and revising its policies and procedures to prevent future violations;
  • Hiring a compliance adviser; and
  • Hiring additional full-time compliance personnel.

Weiss self-reported the seven alleged violations to SEC staff and provided “summaries and chronologies of key issues and events that significantly advanced the efficiency of the staff’s investigation and conserved Commission resources,” according to the order.

Weiss did not respond to a request for comment.

Jeff Dale is the Digital Editor of Compliance Week. He previously worked as a copy editor with the Boston Herald and Patriot Ledger in Quincy, Mass., and is a former city editor of The Hour Publishing Co. in Norwalk, Conn.

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