In re PHILADELPHIA

 
 
 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 70412 / September 16, 2013 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-15494 
 
 
In the Matter of 
 
PHILADELPHIA 
FINANCIAL 
MANAGEMENT OF SAN 
FRANCISCO, 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 Philadelphia Financial Management of San 
Francisco, LLC (“Philadelphia Financial” 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 violations of Rule 105 of Regulation M of the 
Exchange Act by Philadelphia Financial, a California-based registered investment 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 two occasions, from June 2009 through September 2009, Philadelphia Financial 
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 $137,524.  
 
Respondent 
 
 3. Philadelphia Financial Management of San Francisco, LLC is a California limited 
liability company with its principal place of business in San Francisco, California.  Philadelphia 
Financial Management of San Francisco, LLC has been registered with the Commission as an 
investment adviser since January 3, 2005 and provides advisory services to two domestic funds and 
two offshore funds with total assets under management in excess of $764 million. 
 
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 
  
Philadelphia Financial’s Violations of Rule 105 of Regulation M 
 
 6. From September 14 through September 17, 2009, Philadelphia Financial sold short 
156,480 shares of Sonic Automotive Inc. (“SAH”) during the restricted period at an average price 
of $10.2341 per share.  On September 17, 2009, SAH announced the pricing of a follow-on 
offering of its common stock at $10.10 per share.  Philadelphia Financial received an allocation of 
150,000 shares in that offering.  The difference between Philadelphia Financial’s proceeds from 
the restricted period short sales of SAH shares and the price paid for the 150,000 shares received in 
the offering was $20,115.00.  Thus, Philadelphia Financial’s participation in the SAH offering 
netted total profits of $20,115.00. 
 
 7.        On May 27, 2009, Philadelphia Financial sold short 5,388 shares of Prudential 
Financial Inc. (“PRU”) during the restricted period at an average price of $40.5283 per share.  On 
June 2, 2009, PRU announced the pricing of a follow-on offering of its common stock at $39.00 
per share.  Philadelphia Financial received an allocation of 70,000 shares in that offering.  The 
difference between Philadelphia Financial’s proceeds from the restricted period short sales of PRU 
shares and the price paid for the 5,388 shares received in the offering was $8,234.48.  Respondent 
also improperly obtained a benefit of $109,174.90 by purchasing the remaining 64,612 shares at a 
discount from PRU’s market price.  Thus, Philadelphia Financial’s participation in the PRU 
offering netted total profits of $117,409.38. 
 
  8. In total, Philadelphia Financial’s violations of Rule 105 resulted in profits of 
$137,524.38. 
 
Violations 
 
 9. As a result of the conduct described above, Philadelphia Financial violated Rule 
105 of Regulation M under the Exchange Act.  
 
Philadelphia Financial’s Remedial Efforts 
10. 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 Philadelphia Financial’s Offer. 
 
 
 Accordingly, it is hereby ORDERED that: 
 

 4 
 A. Pursuant to Section 21C of the Exchange Act, Respondent Philadelphia Financial 
cease and desist from committing or causing any violations and any future violations of Rule 105 of 
Regulation M of the Exchange Act;   
 
 B. Philadelphia Financial shall within fourteen (14) days of the entry of this Order, pay 
disgorgement of $137,524.38, prejudgment interest of $16,919.26, and a civil money penalty in the 
amount of $65,000 (for a total of $219,443.64) 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) 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 
Philadelphia  Financial 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 
                                                 
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. 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 70412 / September 16, 2013 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-15494 

 

 

In the Matter of 

 

PHILADELPHIA 

FINANCIAL 

MANAGEMENT OF SAN 

FRANCISCO, 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 Philadelphia Financial Management of San 

Francisco, LLC (“Philadelphia Financial” 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 violations of Rule 105 of Regulation M of the 

Exchange Act by Philadelphia Financial, a California-based registered investment 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 two occasions, from June 2009 through September 2009, Philadelphia Financial 

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 $137,524.  

 

Respondent 

 

 3. Philadelphia Financial Management of San Francisco, LLC is a California limited 

liability company with its principal place of business in San Francisco, California.  Philadelphia 

Financial Management of San Francisco, LLC has been registered with the Commission as an 

investment adviser since January 3, 2005 and provides advisory services to two domestic funds and 

two offshore funds with total assets under management in excess of $764 million. 

 

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 

  

Philadelphia Financial’s Violations of Rule 105 of Regulation M 

 

 6. From September 14 through September 17, 2009, Philadelphia Financial sold short 

156,480 shares of Sonic Automotive Inc. (“SAH”) during the restricted period at an average price 

of $10.2341 per share.  On September 17, 2009, SAH announced the pricing of a follow-on 

offering of its common stock at $10.10 per share.  Philadelphia Financial received an allocation of 

150,000 shares in that offering.  The difference between Philadelphia Financial’s proceeds from 

the restricted period short sales of SAH shares and the price paid for the 150,000 shares received in 

the offering was $20,115.00.  Thus, Philadelphia Financial’s participation in the SAH offering 

netted total profits of $20,115.00. 

 

 7.        On May 27, 2009, Philadelphia Financial sold short 5,388 shares of Prudential 

Financial Inc. (“PRU”) during the restricted period at an average price of $40.5283 per share.  On 

June 2, 2009, PRU announced the pricing of a follow-on offering of its common stock at $39.00 

per share.  Philadelphia Financial received an allocation of 70,000 shares in that offering.  The 

difference between Philadelphia Financial’s proceeds from the restricted period short sales of PRU 

shares and the price paid for the 5,388 shares received in the offering was $8,234.48.  Respondent 

also improperly obtained a benefit of $109,174.90 by purchasing the remaining 64,612 shares at a 

discount from PRU’s market price.  Thus, Philadelphia Financial’s participation in the PRU 

offering netted total profits of $117,409.38. 

 

  8. In total, Philadelphia Financial’s violations of Rule 105 resulted in profits of 

$137,524.38. 

 

Violations 

 

 9. As a result of the conduct described above, Philadelphia Financial violated Rule 

105 of Regulation M under the Exchange Act.  

 

Philadelphia Financial’s Remedial Efforts 

10. 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 Philadelphia Financial’s Offer. 

 

 

 Accordingly, it is hereby ORDERED that: 

 



 4 

 A. Pursuant to Section 21C of the Exchange Act, Respondent Philadelphia Financial 

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

Regulation M of the Exchange Act;   

 

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

disgorgement of $137,524.38, prejudgment interest of $16,919.26, and a civil money penalty in the 

amount of $65,000 (for a total of $219,443.64) 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) 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 

Philadelphia Financial 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 

                                                 
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.