2014-09-16 SEC Press pdf 96 KB 12,050 chars

In re ROCKWOOD

Exhibit of SEC Sanctions 19 Firms and Individual Trader for Short Selling Violations in Advance of Stock Offerings

summary

Rockwood Investment Management, Inc. violated Rule 105 of Regulation M by short-selling four equities during restricted periods before purchasing shares in follow-on offerings, generating $156,631 in illicit profits, and agreed to a cease-and-desist order with $237,988 in total penalties without admitting or denying the findings.

paragraph

Rockwood Investment Management, Inc. engaged in six violations of Rule 105 of Regulation M between May 2010 and July 2012 by short-selling equity securities—primarily AGNC, NLY, TWO, and HTS—during the restricted period prior to participating in follow-on public offerings. These actions yielded $156,631 in illicit profits, as Rockwood purchased shares at offering prices after having sold them short at higher prices, exploiting the price differential. Without admitting or denying the allegations, Rockwood consented to a cease-and-desist order and agreed to disgorge $156,631 in profits, pay $9,222 in prejudgment interest, and a $72,135 civil penalty, totaling $237,988.

narrative

Rockwood Investment Management, Inc., a Connecticut-based exempt reporting adviser with over $121 million in assets under management, violated Rule 105 of Regulation M on six occasions between May 2010 and July 2012 by selling short equity securities during the restricted period and then purchasing shares in the same companies’ follow-on public offerings. The violations involved AGNC, NLY, TWO, and HTS, with documented profits of $156,631 arising from the arbitrage between short-sale proceeds and offering purchase prices, including improper benefits from discounted allocations on non-shorted shares. For example, in May 2010, Rockwood shorted 9,000 shares of AGNC at $27.69 and later purchased 46,100 shares in the offering at $25.75, netting $17,472 in profit; similarly, in January 2011, shorting 47,864 shares of NLY at $17.62 and purchasing 250,000 shares at $17.20 generated $19,921 in illicit gains. Rule 105 prohibits such conduct regardless of intent, as it undermines market integrity by manipulating offering prices. Rockwood consented to a cease-and-desist order without admitting or denying the findings, agreeing to disgorge $156,631 in profits, pay $9,222 in prejudgment interest, and a $72,135 civil penalty, totaling $237,988. The SEC accepted the settlement in part due to Rockwood’s cooperation and remedial actions during the investigation, and the order was issued to deter similar misconduct by other market participants.

Enriched metadata

Scheme: market-manipulation (100%)
Outcome: settled
Disgorgement: $156,631
Civil penalty: $237,988

Classified market-manipulation(confidence 100%). EDGAR detection: forms SC 13D/G/13F· recall 53% / precision 9%. detection rule →

Extracted insights

Dollar amounts 20

$121.00M $121 million $100M–$1B
$1.00M $1,000,000 $1M–$10M
$238K $237,988 $100K–$1M
$157K $156,631 $100K–$1M
$72K $72,135 $10K–$100K
$58K $57,983 $10K–$100K
$38K $38,062 $10K–$100K
$33K $33,024 $10K–$100K
$22K $21,953 $10K–$100K
$21K $20,725 $10K–$100K
$20K $19,920 $10K–$100K
$20K $19,661 $10K–$100K

Entities 3

person advisory services
company rockwood investment management, inc.
agency Securities and Exchange Commission

Triples 8

Securities and Exchange Commission instituted cease-and-desist proceedings
Securities and Exchange Commission accepted Offer of Settlement
Rockwood Investment Management, Inc. violated Rule 105 of Regulation M
Rockwood Investment Management, Inc. resulted in profits of $156,631
Rockwood Investment Management, Inc. consented to entry of this Order
Rockwood Investment Management, Inc. admitted Commission's jurisdiction
Rockwood Investment Management, Inc. provides advisory services
Rockwood Investment Management, Inc. has total assets under management in excess of $121 million

PDF

In re ROCKWOOD · Source

Text layers

Extracted body text (12,050c)

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 73106 / September 16, 2014

ADMINISTRATIVE PROCEEDING
File No. 3-16110

In the Matter of

ROCKWOOD
INVESTMENT
MANAGEMENT, INC.

Respondent.

ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO
SECTION 21C OF THE SECURITIES
EXCHANGE ACT OF 1934, MAKING
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER AND CIVIL
PENALTY

The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities
Exchange Act of 1934 (“Exchange Act”), against Rockwood Investment Management, Inc.
(“Rockwood” or “Respondent”).

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer
of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the
purpose of these proceedings and any other proceedings brought by or on behalf of the
Commission, or to which the Commission is a party, and without admitting or denying the findings
herein, except as to the Commission’s jurisdiction over it and the subject matter of these
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making
Findings, and Imposing a Cease-and-Desist Order and Civil Penalty (“Order”), as set forth below.

III.

On the basis of this Order and Respondent’s Offer, the Commission finds
1
that:

Summary

1. These proceedings arise out of violations of Rule 105 of Regulation M of the
Exchange Act by Rockwood, a Connecticut-based exempt reporting adviser. Rule 105 prohibits
selling short an equity security that is the subject of certain public offerings and purchasing the
offered security from an underwriter or broker or dealer participating in the offering, if such short
sale was effected during the restricted period as defined therein.

2. On six occasions, from May 2010 through July 2012, Rockwood bought offering
shares from an underwriter or broker or dealer participating in a follow-on public offering after
having sold short the same security during the Rule 105 restricted period. These violations
collectively resulted in profits of $156,631.

Respondent

3. Rockwood Investment Management, Inc. is a corporation incorporated in
Delaware with its principal place of business in Greenwich, Connecticut. Rockwood Investment
Management, Inc. was an exempt reporting adviser at the time of the violations. Rockwood
Investment Management, Inc. provides advisory services to one domestic fund and has total
assets under management in excess of $121 million.

Legal Framework

4. Rule 105 makes it unlawful for a person to purchase equity securities in certain
public offerings from an underwriter, broker, or dealer participating in the offering if that person
sold short the security that is the subject of the offering during the restricted period defined in the
rule, absent an exception. 17 C.F.R. § 242.105; see Short Selling in Connection with a Public
Offering, Rel. No. 34-56206, 72 Fed. Reg. 45094 (Aug. 10, 2007) (effective Oct. 9, 2007). The
Rule 105 restricted period is the shorter of the period: (1) beginning five business days before the
pricing of the offered securities and ending with such pricing; or (2) beginning with the initial
filing of a registration statement or notification on Form 1-A or Form 1-E and ending with the
pricing. 17 C.F.R. § 242.105(a)(1) and (a)(2).

5. The Commission adopted Rule 105 “to foster secondary and follow-on offering
prices that are determined by independent market dynamics and not by potentially manipulative
activity.” 72 Fed. Reg. 45094. Rule 105 is prophylactic and prohibits the conduct irrespective of
the short seller’s intent in effecting the short sale. Id.

1
The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other person
or entity in this or any other proceeding.

Rockwood’s Violations of Rule 105 of Regulation M

6. On May 11, 2010, Rockwood sold short 9,000 shares of American Capital Agency
Corp. (“AGNC”) during the restricted period at a price of $27.6914 per share. On May 14, 2010,
AGNC announced the pricing of a follow-on offering of its common stock at $25.75 per share.
Rockwood received an allocation of 46,100 shares in that offering. The difference between
Rockwood’s proceeds from the restricted period short sales of AGNC shares and the price paid for
the 9,000 shares received in the offering was $17,472. Thus, Rockwood’s participation in the 2010
AGNC offering resulted in total profits of $17,472.

7. On January 3, 2011, Rockwood sold short 47,864 shares of Annaly Capital
Management Inc. (“NLY”) during the restricted period at a price of $17.6162 per share. On
January 4, 2011, NLY priced a follow-on offering of its common stock at $17.20 per share.
Rockwood received an allocation of 250,000 shares in that offering. The difference between
Rockwood’s proceeds received from the restricted period short sales of NLY shares and the price
paid for the 47,864 shares received in the offering was $19,920.98. Respondent also improperly
obtained a benefit of $38,062.21 by purchasing the remaining 202,136 shares at a discount from
NLY’s market price. Thus, Rockwood’s participation in the NLY offering resulted in total profits
of $57,983.

8. From March 4, 2011 through March 8, 2011, Rockwood sold short 6,900 shares of
Two Harbors Investment Co. (“TWO”) during the restricted period at an average price of $11.3263
per share. On March 11, 2011, TWO priced a follow-on offering of its common stock at $10.25
per share. Rockwood received an allocation of 120,000 shares in that offering. The difference
between Rockwood’s proceeds received from the restricted period short sales of TWO shares and
the price paid for the 6,900 shares received in the offering was $7,242.92. Respondent also
improperly obtained a benefit of $12,418.38 by purchasing the remaining 113,100 shares at a
discount from TWO’s market price. Thus, Rockwood’s participation in the TWO offering resulted
in total profits of $19,661.

9. On March 15, 2011, Rockwood sold short 13,954 shares of Hatteras Financial
Corp. (“HTS”) during the restricted period at a price of $30.8666 per share. On March 18, 2011,
HTS announced the pricing of a follow-on offering of its common stock at $28.50 per share.
Rockwood received an allocation of 25,000 shares in that offering. The difference between
Rockwood’s proceeds from the restricted period short sales of HTS shares and the price paid for
the 13,954 shares received in the offering was $33,024. Thus, Rockwood’s participation in the
HTS offering resulted in total profits of $33,024.

10. From March 2, 2012 through March 5, 2012, Rockwood sold short 15,000 shares
of American Capital Agency Co. (“AGNC”) during the restricted period at an average price of
$30.6025 per share. On March 7, 2012, AGNC priced a follow-on offering of its common stock at
$29.35 per share. Rockwood received an allocation of 26,000 shares in that offering. The
difference between Rockwood’s proceeds received from the restricted period short sales of AGNC

4
shares and the price paid for the 15,000 shares received in the offering was $20,725. Respondent
also improperly obtained a benefit of $1,227.60 by purchasing the remaining 11,000 shares at a
discount from AGNC’s market price. Thus, Rockwood’s participation in the March 2012 AGNC
offering resulted in total profits of $21,953.

11. On July 17, 2012, Rockwood sold short 6,000 shares of American Capital Agency
Co. (“AGNC”) during the restricted period at a price of $34.8269 per share. On July 18, 2012,
AGNC priced a follow-on offering of its common stock at $34.10 per share. Rockwood received
an allocation of 30,000 shares in that offering. The difference between Rockwood’s proceeds
received from the restricted period short sales of AGNC shares and the price paid for the 6,000
shares received in the offering was $4,361.20. Respondent also improperly obtained a benefit of
$2,176.80 by purchasing the remaining 24,000 shares at a discount from AGNC’s market price.
Thus, Rockwood’s participation in the March 2012 AGNC offering resulted in total profits of
$6,538.

12. In total, Rockwood’s violations of Rule 105 resulted in profits of $156,631.

Violations

13. As a result of the conduct described above, Rockwood violated Rule 105 of
Regulation M under the Exchange Act.

Rockwood’s Remedial Efforts & Cooperation
14. In determining to accept the Offer, the Commission considered remedial
acts promptly undertaken by Respondent and cooperation afforded to Commission staff.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions
agreed to in Respondent Rockwood’s Offer.

Accordingly, it is hereby ORDERED that:

A. Pursuant to Section 21C of the Exchange Act, Respondent Rockwood cease and
desist from committing or causing any violations and any future violations of Rule 105 of
Regulation M of the Exchange Act;

B. Rockwood shall within fourteen (14) days of the entry of this Order, pay
disgorgement of $156,631, prejudgment interest of $9,222.16, and a civil money penalty in the
amount of $72,135.23 (for a total of $237,988.39) to the United States Treasury. If timely payment
is not made on the disgorgement amount, additional interest shall accrue pursuant to SEC Rule of
Practice 600. If timely payment is not made on the civil money penalty, additional interest shall
accrue pursuant to 31 U.S.C. 3717. Payments must be made in one of the following ways:

5
(1) Respondent may transmit payment electronically to the Commission, which will
provide detailed ACH transfer/Fedwire instructions upon request;
2

(2) Respondent may make direct payment from a bank account via Pay.gov through the
SEC website at http://www.sec.gov/about/offices/ofm.htm; or
(3) Respondent may pay by certified check, bank cashier’s check, or United States postal
money order, made payable to the Securities and Exchange Commission and hand-
delivered or mailed to:

Enterprise Services Center
Accounts Receivable Branch
HQ Bldg., Room 181, AMZ-341
6500 South MacArthur Boulevard
Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter identifying
Rockwood as a Respondent in these proceedings, and the file number of these proceedings; a copy
of the cover letter and check or money order must be sent to Gerald W. Hodgkins, Associate
Director, Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E.,
Washington, DC 20549.

By the Commission.

Jill M. Peterson
Assistant Secretary

2
The minimum threshold for transmission of payment electronically is $1,000,000. For amounts below the
threshold, respondents must make payments pursuant to options (2) or (3) above.

OCR text (11,468c · tika · 95% conf)

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 73106 / September 16, 2014

ADMINISTRATIVE PROCEEDING
File No. 3-16110

In the Matter of

ROCKWOOD
INVESTMENT
MANAGEMENT, INC.

Respondent.

ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO
SECTION 21C OF THE SECURITIES
EXCHANGE ACT OF 1934, MAKING
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER AND CIVIL
PENALTY

II.

III.

On the basis of this Order and Respondent’s Offer, the Commission finds1 that:

Summary

1. These proceedings arise out of violations of Rule 105 of Regulation M of the

Exchange Act by Rockwood, a Connecticut-based exempt reporting adviser. Rule 105 prohibits
selling short an equity security that is the subject of certain public offerings and purchasing the
offered security from an underwriter or broker or dealer participating in the offering, if such short
sale was effected during the restricted period as defined therein.

Respondent

Legal Framework

5. The Commission adopted Rule 105 “to foster secondary and follow-on offering

prices that are determined by independent market dynamics and not by potentially manipulative
activity.” 72 Fed. Reg. 45094. Rule 105 is prophylactic and prohibits the conduct irrespective of
the short seller’s intent in effecting the short sale. Id.

1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other person
or entity in this or any other proceeding.

Rockwood’s Violations of Rule 105 of Regulation M

shares and the price paid for the 15,000 shares received in the offering was $20,725. Respondent
also improperly obtained a benefit of $1,227.60 by purchasing the remaining 11,000 shares at a
discount from AGNC’s market price. Thus, Rockwood’s participation in the March 2012 AGNC
offering resulted in total profits of $21,953.

12. In total, Rockwood’s violations of Rule 105 resulted in profits of $156,631.

Violations

13. As a result of the conduct described above, Rockwood violated Rule 105 of
Regulation M under the Exchange Act.

Rockwood’s Remedial Efforts & Cooperation

14. In determining to accept the Offer, the Commission considered remedial
acts promptly undertaken by Respondent and cooperation afforded to Commission staff.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions
agreed to in Respondent Rockwood’s Offer.

Accordingly, it is hereby ORDERED that:

(1) Respondent may transmit payment electronically to the Commission, which will
provide detailed ACH transfer/Fedwire instructions upon request;2

(2) Respondent may make direct payment from a bank account via Pay.gov through the
SEC website at http://www.sec.gov/about/offices/ofm.htm; or

(3) Respondent may pay by certified check, bank cashier’s check, or United States postal
money order, made payable to the Securities and Exchange Commission and hand-
delivered or mailed to:

Enterprise Services Center
Accounts Receivable Branch
HQ Bldg., Room 181, AMZ-341
6500 South MacArthur Boulevard
Oklahoma City, OK 73169

By the Commission.

Jill M. Peterson
Assistant Secretary

2 The minimum threshold for transmission of payment electronically is $1,000,000. For amounts below the
threshold, respondents must make payments pursuant to options (2) or (3) above.