In re CREDENTIA GROUP

 
 
 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 70394 / September 16, 2013 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-15475 
 
 
In the Matter of 
 
CREDENTIA GROUP, LLC,  
 
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 
  
I. 
 
 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 Credentia Group, LLC (“Credentia” 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.   
 
 
 
 
 

 2 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that:  
 
Summary 
 
1. These proceedings arise out of a violation of Rule 105 of Regulation M of the 
Exchange Act by Credentia, a Kansas-based professional money management firm.  Rule 105 
prohibits buying an equity security made available through a public offering, conducted on a firm 
commitment basis, from an underwriter or broker or dealer participating in the offering after 
having sold short the same security during the restricted period as defined therein. 
 
 2. In August 2012, Credentia bought offered shares from an underwriter or broker or 
dealer participating in a follow-on public offering after having sold short the same security during 
the restricted period.  This violation resulted in profits of $4,091.  
 
Respondent 
 
 3. Credentia Group, LLC is a professional money management firm specializing in 
the management, analysis and trading of structured mortgage securities and publicly traded 
financial equity securities.  Credentia’s primary fund’s net assets are in excess of $40 million.  
Credentia is not a registered investment adviser. 
 
Legal Framework 
 
4. Rule 105 makes it unlawful for a person to purchase equity securities from an 
underwriter, broker, or dealer participating in a public 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 Exchange Act Form 1-A or Form 1-E and ending with 
pricing.   
 
5. “The goal of Rule 105 is to promote offering prices that are based upon open 
market prices determined by supply and demand rather than artificial forces.”  Final Rule: Short 
Sales, Exchange Act Release No. 50103.  Rule 105 is prophylactic and prohibits the conduct 
irrespective of the short seller’s intent in effecting the short sale. 
 
 
  
                                                 
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. 

 3 
Credentia’s Violations of Rule 105 of Regulation M 
 
 6. On August 16, 2012, Credentia sold short 4,590 shares of PennyMac Mortgage 
Investment Trust (“PMT”) during the restricted period at a price of $21.7724 per share.  On August 
17, 2012, PMT announced the pricing of a follow-on offering of its common stock at $20.93 per 
share.  Credentia received an allocation of 10,000 shares in that offering.  The difference between 
Credentia’s proceeds received from the restricted period short sales of PMT shares and the price 
paid for the 4,590 shares received in the offering was $3,866.62.  Respondent also improperly 
obtained a benefit of $224.51 by purchasing the remaining 5,410 shares at a discount from PMT’s 
market price.  Thus, Credentia’s participation in the PMT offering netted total profits of $4,091.13.  
 
  7. In total, Credentia’s violations of Rule 105 resulted in profits of $4,091. 
 
Violations 
 
 8. As a result of the conduct described above, Credentia violated Rule 105 of 
Regulation M under the Exchange Act.  
 
Credentia’s Remedial Efforts 
9. 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 Credentia’s Offer. 
 
 Accordingly, it is hereby ORDERED that: 
 
 A. Pursuant to Section 21C of the Exchange Act, Respondent Credentia cease and 
desist from committing or causing any violations and any future violations of Rule 105 of 
Regulation M of the Exchange Act;   
 
 B. Credentia shall within fourteen (14) days of the entry of this Order, pay 
disgorgement of $4,091, prejudgment interest of $113.38, and a civil money penalty in the amount 
of $65,000 (for a total of $69,204.38) to the United States Treasury.  If timely payment is not 
made, additional interest shall accrue pursuant to SEC Rule of Practice 600.  Payments must be 
made in one of the following ways: 
 
(1) Respondent may transmit payment electronically to the Commission, which will 
provide detailed ACH transfer/Fedwire instructions upon request;
2
 
                                                 
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. 

 4 
(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 
Credentia 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. 
 
 
 
       Elizabeth M. Murphy 
       Secretary 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 70394 / September 16, 2013 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-15475 

 

 

In the Matter of 

 

CREDENTIA GROUP, LLC,  

 

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 

  

I. 
 

 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 Credentia Group, LLC (“Credentia” 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.   

 

 

 

 

 



 2 

III. 
 

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

 

Summary 

 

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

Exchange Act by Credentia, a Kansas-based professional money management firm.  Rule 105 

prohibits buying an equity security made available through a public offering, conducted on a firm 

commitment basis, from an underwriter or broker or dealer participating in the offering after 

having sold short the same security during the restricted period as defined therein. 

 

 2. In August 2012, Credentia bought offered shares from an underwriter or broker or 

dealer participating in a follow-on public offering after having sold short the same security during 

the restricted period.  This violation resulted in profits of $4,091.  

 

Respondent 

 

 3. Credentia Group, LLC is a professional money management firm specializing in 

the management, analysis and trading of structured mortgage securities and publicly traded 

financial equity securities.  Credentia’s primary fund’s net assets are in excess of $40 million.  

Credentia is not a registered investment adviser. 

 

Legal Framework 

 

4. Rule 105 makes it unlawful for a person to purchase equity securities from an 

underwriter, broker, or dealer participating in a public 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 Exchange Act Form 1-A or Form 1-E and ending with 

pricing.   

 

5. “The goal of Rule 105 is to promote offering prices that are based upon open 

market prices determined by supply and demand rather than artificial forces.”  Final Rule: Short 

Sales, Exchange Act Release No. 50103.  Rule 105 is prophylactic and prohibits the conduct 

irrespective of the short seller’s intent in effecting the short sale. 

 

 

  

                                                 
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. 



 3 

Credentia’s Violations of Rule 105 of Regulation M 

 

 6. On August 16, 2012, Credentia sold short 4,590 shares of PennyMac Mortgage 

Investment Trust (“PMT”) during the restricted period at a price of $21.7724 per share.  On August 

17, 2012, PMT announced the pricing of a follow-on offering of its common stock at $20.93 per 

share.  Credentia received an allocation of 10,000 shares in that offering.  The difference between 

Credentia’s proceeds received from the restricted period short sales of PMT shares and the price 

paid for the 4,590 shares received in the offering was $3,866.62.  Respondent also improperly 

obtained a benefit of $224.51 by purchasing the remaining 5,410 shares at a discount from PMT’s 

market price.  Thus, Credentia’s participation in the PMT offering netted total profits of $4,091.13.  

 

  7. In total, Credentia’s violations of Rule 105 resulted in profits of $4,091. 

 

Violations 

 

 8. As a result of the conduct described above, Credentia violated Rule 105 of 

Regulation M under the Exchange Act.  

 

Credentia’s Remedial Efforts 

9. 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 Credentia’s Offer. 

 

 Accordingly, it is hereby ORDERED that: 

 

 A. Pursuant to Section 21C of the Exchange Act, Respondent Credentia cease and 

desist from committing or causing any violations and any future violations of Rule 105 of 

Regulation M of the Exchange Act;   

 

 B. Credentia shall within fourteen (14) days of the entry of this Order, pay 

disgorgement of $4,091, prejudgment interest of $113.38, and a civil money penalty in the amount 

of $65,000 (for a total of $69,204.38) to the United States Treasury.  If timely payment is not 

made, additional interest shall accrue pursuant to SEC Rule of Practice 600.  Payments must be 

made in one of the following ways: 

 

(1) Respondent may transmit payment electronically to the Commission, which will 

provide detailed ACH transfer/Fedwire instructions upon request;2 

                                                 
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. 



 4 

(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 

Credentia 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. 

 

 

 

       Elizabeth M. Murphy 

       Secretary