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SEC's short selling crackdown highlights role of inspections in enforcement actions and continuing need for compliance vigilance

Elizabeth Gray (Partner, based at Willkie Farr & Gallagher LLP, Washington, DC, USA)
Daniel Schloendorn (Of Counsel, based at Willkie Farr & Gallagher LLP, New York, New York, USA)
Howard Kramer (Partner, based at Willkie Farr & Gallagher LLP, Washington, DC, USA)

Journal of Investment Compliance

ISSN: 1528-5812

Article publication date: 25 November 2013

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Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Practical implications

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.

Originality/value

The paper provides practical guidance from experienced securities lawyers.

Keywords

Acknowledgements

© Willkie Farr & Gallagher LLP

Citation

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

Publisher

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Emerald Group Publishing Limited

Copyright © 2013, Authors