U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19228 / May 19, 2005
Securities and Exchange Commission v. Galleon Management, L.P., Civil Action No. 1:05CV1006 (RMU)(D.D.C.)(May 19, 2005)
GALLEON MANAGEMENT, L.P., CONSENTS TO PAY A $870,247 CIVIL PENALTY RELATING TO SHORT SELLING IN CONNECTION WITH 17 FOLLOW-ON OFFERINGS
The United States Securities and Exchange Commission announced the filing of a civil penalty action against Galleon Management, L.P. a New York-based hedge fund adviser. The Commission's Complaint alleges that in connection with 17 follow-on offerings from 2000 through 2003, Galleon violated Rule 105 of Regulation M, which prohibits covering a short sale with securities obtained in a public offering if the short sale occurred beginning five business days before the pricing of the offering. These violations occurred in seven of Galleon's funds with the majority occurring in the Admiral's Overseas fund.
According to the Commission's Complaint, Galleon routinely created follow-on offering boxed positions by establishing a long position with shares purchased in an offering while simultaneously maintaining a pre-pricing short position in the securities of the same issuer. In some instances, Galleon instructed its prime broker to flatten these boxed positions through the use of riskless, offsetting journal entries, a practice known as "collapsing the box." On other occasions, Galleon unwound its boxed positions by contemporaneously entering a market order to sell the offering shares and another order to purchase an equivalent number of shares, which were then used to cover the short position that had been established during the Rule 105 restricted period. These unwinding transactions were entered through two different brokers and executed in the open market. The Complaint further alleges that Galleon realized profits of $1,040,882 from these transactions. Galleon, without admitting or denying the allegations in the Commission's Complaint, has consented to pay a civil penalty of $870,247.
On May 19, 2005, the Commission also instituted and simultaneously settled an administrative cease-and-desist proceeding against Galleon based on the same conduct. (In the Matter of Galleon Management, L.P., Administrative Proceeding File No. 3-11928) ("Order"). Galleon agreed to settle the proceeding, without admitting or denying the findings in the Order. Galleon consented to (1) cease and desist from committing or causing violations or future violations of Rule 105 of Regulation M, (2) disgorge $1,040,882 in profits and pay prejudgment interest of $109,321, and (3) adopt and implement written policies and procedures reasonably designed to prevent violations of Regulation M of the federal securities laws, review those policies and procedures annually, and designate an employee as a chief compliance officer for these purposes.
SEC Complaint in this matter
http://www.sec.gov/litigation/litreleases/lr19228.htm
