In re DEERFIELD

 
 
 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 70398 / September 16, 2013 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-15477 
 
 
In the Matter of 
 
DEERFIELD 
MANAGEMENT 
COMPANY, L.P.,  
 
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 Deerfield Management Company, L.P. 
(“Deerfield” 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 that:  
 
Summary 
 
1. These proceedings arise out of violations of Rule 105 of Regulation M of the 
Exchange Act by Deerfield, a New York-based hedge fund adviser.  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. On six occasions, from December 2010 through January 2013, Deerfield 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.  These violations collectively 
resulted in profits of $1,273,707.  
 
Respondent 
 
 3. Deerfield, a Delaware limited partnership located in New York, New York, is a 
registered investment adviser that provides advisory services exclusively to its associated private 
funds, which have over $3 billion under management. 
 
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. 
  
Deerfield’s Violations of Rule 105 of Regulation M 
 
 6. On December 2, 2010, Deerfield sold short 25,000 shares of Geron Corporation 
(“GERN”) during the restricted period at an average price of $5.97 per share.  On December 7, 
2010, GERN announced the pricing of a follow-on offering of its common stock at $5.00 per share.  

 3 
Deerfield received an allocation of 2,900,000 shares in that offering.  The difference between 
Deerfield’s proceeds received from the restricted period short sales of GERN shares and the price 
for the 25,000 shares received in the offering was $24,313.  Respondent also improperly obtained a 
benefit of $336,088 by purchasing the remaining 2,875,000 shares at a discount from GERN’s 
market price.  Thus, Deerfield’s participation in the GERN offering netted total profits of 
$360,401.        
 
 7.  On April 1, 2011, Deerfield sold short 12,363 shares of Sangamo BioSciences, Inc. 
(“SGMO”) during the restricted period at an average price of $8.26 per share.  On April 8, 2011, 
SGMO announced the pricing of a follow-on offering of its common stock at $7.70 per share.  
Deerfield received an allocation of 250,000 shares in that offering.  The difference between 
Deerfield’s proceeds received from the restricted period short sales of SGMO shares and the price 
for the 12,363 shares received in the offering was $6,921.  Respondent also improperly obtained a 
benefit of $8,032 by purchasing the remaining 237,637 shares at a discount from SGMO’s market 
price.  Thus, Deerfield’s participation in the SGMO offering netted total profits of $14,953.  
 
 8. During the period from February 2, 2012, through February 8, 2012, Deerfield sold 
short 1,417,818 shares of Array BioPharma, Inc. (“ARRY”) during the restricted period at an 
average price of $3.10 per share.  On February 9, 2012, ARRY announced the pricing of a follow-
on offering of its common stock at $2.60 per share.  Deerfield received an allocation of 1,000,000 
shares in that offering.  The difference between Deerfield’s proceeds received from the restricted 
period short sales of ARRY shares and the price for the 1,000,000 shares received in the offering 
was $502,576.  Thus, Deerfield’s participation in the ARRY offering netted total profits of 
$502,576. 
 
  9. On March 26, 2012, Deerfield sold short 233,212 shares of Derma Sciences, Inc. 
(“DSCI”) during the restricted period at an average price of $9.28 per share.  On April 2, 2012, 
DSCI announced the pricing of a follow-on offering of its common stock at $9.25 per share.  
Deerfield received an allocation of 500,000 shares in that offering.  The difference between 
Deerfield’s proceeds received from the restricted period short sales of DSCI shares and the price 
for the 233,212 shares received in the offering was $7,198.  Respondent also improperly obtained a 
benefit of $133,554 by purchasing the remaining 266,788 shares at a discount from DSCI’s market 
price.  Thus, Deerfield’s participation in the DSCI offering netted total profits of $140,752. 
 
 10.  During the period from April 4, 2012, through April 5, 2012, Deerfield sold short 
64,900 shares of TearLab Corporation (“TEAR”) during the restricted period at an average price of 
$3.89 per share.  On April 11, 2012, TEAR announced the pricing of a follow-on offering of its 
common stock at $3.60 per share.  Deerfield received an allocation of 100,000 shares in that 
offering.  The difference between Deerfield’s proceeds received from the restricted period short 
sales of TEAR shares and the price for the 64,900 shares received in the offering was $18,704.  
Respondent also improperly obtained a benefit of $13,770 by purchasing the remaining 35,100 
shares at a discount from TEAR’s market price.  Thus, Deerfield’s participation in the TEAR 
offering netted total profits of $32,474. 
 

 4 
 11. During the period from December 31, 2012, through January 3, 2013, Deerfield 
sold short 268,900 shares of Insulet Corporation (“PODD”) during the restricted period at an 
average price of $21.56 per share.  On January 4, 2013, PODD announced the pricing of a follow-
on offering of its common stock at $20.75 per share.  Deerfield received an allocation of 275,000 
shares in that offering.  The difference between Deerfield’s proceeds received from the restricted 
period short sales of PODD shares and the price for the 268,900 shares received in the offering was 
$217,237.  Respondent also improperly obtained a benefit of $5,314 by purchasing the remaining 
6,100 shares at a discount from PODD’s market price.  Thus, Deerfield’s participation in the 
PODD offering netted total profits of $222,551. 
 
 12. In total, Deerfield’s violations of Rule 105 resulted in profits of $1,273,707. 
 
Violations 
 
 13. As a result of the conduct described above, Deerfield violated Rule 105 of 
Regulation M under the Exchange Act.  
 
Deerfield’s Remedial Efforts 
14. In determining to accept the Offer, the Commission considered remedial 
acts promptly undertaken by Respondent and cooperation afforded the Commission staff. 
IV. 
 
 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent Deerfield’s Offer. 
 
 Accordingly, it is hereby ORDERED that: 
 
 A. Pursuant to Section 21C of the Exchange Act, Respondent Deerfield cease and desist 
from committing or causing any violations and any future violations of Rule 105 of Regulation M of 
the Exchange Act;   
 
 B. Deerfield shall within fourteen (14) days of the entry of this Order, pay 
disgorgement of $1,273,707, prejudgment interest of $19,035, and a civil money penalty in the 
amount of $609,482 (for a total of $1,902,224) 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;
1
 
(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  
                                                 
1
  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. 

 5 
(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 
Deerfield 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 Ian  S.  Karpel, Assistant Regional 
Director, Division of Enforcement, Securities and Exchange Commission, Denver Regional Office, 
1801 California Street, Suite 1500, Denver, CO 80202.  
 
 By the Commission. 
 
 
 
       Elizabeth M. Murphy 
       Secretary 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 70398 / September 16, 2013 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-15477 

 

 

In the Matter of 

 

DEERFIELD 

MANAGEMENT 

COMPANY, L.P.,  

 

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 Deerfield Management Company, L.P. 

(“Deerfield” 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 that:  

 

Summary 

 

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

Exchange Act by Deerfield, a New York-based hedge fund adviser.  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. On six occasions, from December 2010 through January 2013, Deerfield 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.  These violations collectively 

resulted in profits of $1,273,707.  

 

Respondent 

 

 3. Deerfield, a Delaware limited partnership located in New York, New York, is a 

registered investment adviser that provides advisory services exclusively to its associated private 

funds, which have over $3 billion under management. 

 

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. 

  

Deerfield’s Violations of Rule 105 of Regulation M 

 

 6. On December 2, 2010, Deerfield sold short 25,000 shares of Geron Corporation 

(“GERN”) during the restricted period at an average price of $5.97 per share.  On December 7, 

2010, GERN announced the pricing of a follow-on offering of its common stock at $5.00 per share.  



 3 

Deerfield received an allocation of 2,900,000 shares in that offering.  The difference between 

Deerfield’s proceeds received from the restricted period short sales of GERN shares and the price 

for the 25,000 shares received in the offering was $24,313.  Respondent also improperly obtained a 

benefit of $336,088 by purchasing the remaining 2,875,000 shares at a discount from GERN’s 

market price.  Thus, Deerfield’s participation in the GERN offering netted total profits of 

$360,401.        

 

 7.  On April 1, 2011, Deerfield sold short 12,363 shares of Sangamo BioSciences, Inc. 

(“SGMO”) during the restricted period at an average price of $8.26 per share.  On April 8, 2011, 

SGMO announced the pricing of a follow-on offering of its common stock at $7.70 per share.  

Deerfield received an allocation of 250,000 shares in that offering.  The difference between 

Deerfield’s proceeds received from the restricted period short sales of SGMO shares and the price 

for the 12,363 shares received in the offering was $6,921.  Respondent also improperly obtained a 

benefit of $8,032 by purchasing the remaining 237,637 shares at a discount from SGMO’s market 

price.  Thus, Deerfield’s participation in the SGMO offering netted total profits of $14,953.  

 

 8. During the period from February 2, 2012, through February 8, 2012, Deerfield sold 

short 1,417,818 shares of Array BioPharma, Inc. (“ARRY”) during the restricted period at an 

average price of $3.10 per share.  On February 9, 2012, ARRY announced the pricing of a follow-

on offering of its common stock at $2.60 per share.  Deerfield received an allocation of 1,000,000 

shares in that offering.  The difference between Deerfield’s proceeds received from the restricted 

period short sales of ARRY shares and the price for the 1,000,000 shares received in the offering 

was $502,576.  Thus, Deerfield’s participation in the ARRY offering netted total profits of 

$502,576. 

 

  9. On March 26, 2012, Deerfield sold short 233,212 shares of Derma Sciences, Inc. 

(“DSCI”) during the restricted period at an average price of $9.28 per share.  On April 2, 2012, 

DSCI announced the pricing of a follow-on offering of its common stock at $9.25 per share.  

Deerfield received an allocation of 500,000 shares in that offering.  The difference between 

Deerfield’s proceeds received from the restricted period short sales of DSCI shares and the price 

for the 233,212 shares received in the offering was $7,198.  Respondent also improperly obtained a 

benefit of $133,554 by purchasing the remaining 266,788 shares at a discount from DSCI’s market 

price.  Thus, Deerfield’s participation in the DSCI offering netted total profits of $140,752. 

 

 10.  During the period from April 4, 2012, through April 5, 2012, Deerfield sold short 

64,900 shares of TearLab Corporation (“TEAR”) during the restricted period at an average price of 

$3.89 per share.  On April 11, 2012, TEAR announced the pricing of a follow-on offering of its 

common stock at $3.60 per share.  Deerfield received an allocation of 100,000 shares in that 

offering.  The difference between Deerfield’s proceeds received from the restricted period short 

sales of TEAR shares and the price for the 64,900 shares received in the offering was $18,704.  

Respondent also improperly obtained a benefit of $13,770 by purchasing the remaining 35,100 

shares at a discount from TEAR’s market price.  Thus, Deerfield’s participation in the TEAR 

offering netted total profits of $32,474. 

 



 4 

 11. During the period from December 31, 2012, through January 3, 2013, Deerfield 

sold short 268,900 shares of Insulet Corporation (“PODD”) during the restricted period at an 

average price of $21.56 per share.  On January 4, 2013, PODD announced the pricing of a follow-

on offering of its common stock at $20.75 per share.  Deerfield received an allocation of 275,000 

shares in that offering.  The difference between Deerfield’s proceeds received from the restricted 

period short sales of PODD shares and the price for the 268,900 shares received in the offering was 

$217,237.  Respondent also improperly obtained a benefit of $5,314 by purchasing the remaining 

6,100 shares at a discount from PODD’s market price.  Thus, Deerfield’s participation in the 

PODD offering netted total profits of $222,551. 

 

 12. In total, Deerfield’s violations of Rule 105 resulted in profits of $1,273,707. 

 

Violations 

 

 13. As a result of the conduct described above, Deerfield violated Rule 105 of 

Regulation M under the Exchange Act.  

 

Deerfield’s Remedial Efforts 

14. In determining to accept the Offer, the Commission considered remedial 

acts promptly undertaken by Respondent and cooperation afforded the Commission staff. 

IV. 

 

 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondent Deerfield’s Offer. 

 

 Accordingly, it is hereby ORDERED that: 

 

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

from committing or causing any violations and any future violations of Rule 105 of Regulation M of 

the Exchange Act;   

 

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

disgorgement of $1,273,707, prejudgment interest of $19,035, and a civil money penalty in the 

amount of $609,482 (for a total of $1,902,224) 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;
1
 

(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  

                                                 
1  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. 



 5 

(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 

Deerfield 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 Ian S. Karpel, Assistant Regional 

Director, Division of Enforcement, Securities and Exchange Commission, Denver Regional Office, 

1801 California Street, Suite 1500, Denver, CO 80202.  

 

 By the Commission. 

 

 

 

       Elizabeth M. Murphy 

       Secretary