The SEC crackdown on rogue hedge funds continues.
The federal regulator on Tuesday charged 23 funds with stock manipulation — improperly profiting from a company’s stock by shorting it five days before a secondary offering, and then buying shares in the offering.
The $23 billion D.E. Shaw fund, one of the largest hedge funds in the country, was one of 22 firms settling with the Securities and Exchange Commission.
D.E. Shaw paid $667,000 to settle the charges it improperly pocketed profits of $447,794.
It did not admit or deny wrongdoing.
The SEC has been trying to stop improper short-selling for years, and previously brought similar cases against such big names as Harbinger Capital, Touradji Capital, Level Global, Carlson Capital and Appaloosa Management.
Since January 2010, the SEC has collected more than $42 million, settling more than 40 such cases.
In Tuesday’s cases, a total of $14.4 million was paid by the 22 firms.
G-2 Trading, a broker-dealer and the 23rd company accused by the SEC, is fighting the charges.
One reason the abuse has been so rampant is that firms “believe that the risk of being caught is low or that the gains exceed the risk,” said Ron Geffner, a partner with Sadis & Goldberg.
But shorting has come under scrutiny ever since the financial crisis of 2008, and it has become easier for the SEC to track hedge-fund short sales under the Dodd-Frank financial regulation passed in the wake of the crisis.
Among the other firms charged: Deerfield Management, Hudson Bay Capital, the Ontario Teachers Pension Plan Board and JCP Global Gestao de Recursos, a Brazilian asset-management firm the SEC claimed made illicit gains of $2.5 million.
“The commission said they were going to look at this and they warned people, and then some of these fund managers apparently didn’t take them seriously,” said Jay Gould, a partner at law firm Pillsbury Winthrop Shaw Pittman.