Hedge fund adviser charged with short sales

The Securities and Exchange Commission today charged Sandell Asset Management Corp. with short-sale violations. Back in 2005, New York-based Sandell Asset Management held long positions in Hibernia Corp., a bank holding company in New Orleans. Hibernia was the subject of an acquisition agreement with Capital One Financial Corp. around the time Hurricane Katrina struck in August of that year, according to the SEC’s complaint. SAM believed that Capital One would cut its offer price for Hibernia following the disaster, so the firm sold short as many of its Hibernia shares as it could in order to avoid a loss for a client. However, SAM improperly marked certain sales as “long” and told broker-dealers executing the trades that they had located stock to borrow when they didn’t, the SEC said. “By mismarking certain trades and falsely claiming that firm personnel had located stock to borrow, Sandell Asset Management gained an unfair trading advantage over market participants,” said Scott W. Freistad, associate director of the SEC’s division of enforcement in a statement. “This settlement deprives the firm of the profits made form the improper trading and includes penalties and other sanctions designed to deter others from engaging in similar misconduct.” SAM paid a settlement of $8 million, including $6.7 million in disgorgement, $730,811 in prejudgment interest and a $650,000 penalty. CEO Thomas Sandell, senior managing director Patrick Burke and head trader Richard Ecklord were also charged by the SEC. The three men did not admit or deny wrongdoing. Mr. Sandell paid $100,000 in civil penalties, while Mr. Burke paid $50,000 and Mr. Ecklord paid $40,000.