Lynn and Worldwide Capital will pay back roughly $4.2 million in ill-gotten gains as well as a $2.5 million penalty plus, more than $500,000 in prejudgment interest under the terms of the settlement with the SEC. Lynn and Worldwide reaped ill-gotten gains of more than $8.4 million as a result of the illegal trades, per the SEC. Per the report, Lynn and Worldwide Capital kept nearly half of the gains and paid out the other half to individual traders who had facilitated the short sales.
The SEC reported that, from October 2007 through February 2012, Lynn and Worldwide Capital participated in 60 different offerings by shorting shares during the restricted periods and then purchasing those shares in the offering.
Lynn and Worldwide Capital violated Rule 105 of "Regulation M" per the SEC order. Rule 105 of "Regulation M" prohibits a trader from shorting stock prior to a public offering and then subsequently buying that same stock through the offering. The Rule was designed by the SEC to protect against potential market manipulation. The SEC does not need to prove a defendant intended to violate the rule in order to bring charges. The typical restricted period is at least five business days before a public deal.
SEC examiners launched a new high-tech data program on March 1 that will improve the agency's ability to detect violations of Regulation M, as well as more serious offenses such as but not limited to, insider trading. During 2013, the SEC has been cracking down on Regulation M violations.
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