The purpose of this paper is to explain and interpret the Securities and Exchange Commission's (SEC's) recently announced charges against 23 firms for violation of short selling restrictions set out in Rule 105 under Regulation M of the Securities Exchange Act of 1934.
The paper explains the requirements of and exceptions to Rule 105; shows how an increasing number of enforcement cases have had their origins in SEC staff inspections; and recommends internal training and policies and procedures to ensure that firms comply with the rule.
Rule 105 in general prohibits short selling a security within a specified period of time prior to the purchase of that security in a follow-on or secondary firm commitment offering.
Vigilance over internal compliance programs is increasingly important to avoid violating applicable legal requirements such as those set out in Rule 105 and, more importantly, a potential enforcement action over witting or unwitting compliance violations.
The paper provides practical guidance from experienced securities lawyers.
© Willkie Farr & Gallagher LLP
Gray, E., Schloendorn, D. and Kramer, H. (2013), "SEC's short selling crackdown highlights role of inspections in enforcement actions and continuing need for compliance vigilance", Journal of Investment Compliance, Vol. 14 No. 4, pp. 31-33. https://doi.org/10.1108/JOIC-10-2013-0039
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