Forrest Fontana and his Boston-based investment firm agreed to pay more than $900,000 to settle U.S. regulator claims they violated anti-manipulation rules.
Fontana Capital LLC bet against shares of Merrill Lynch & Co., XL Group Plc and Wells Fargo & Co. during a restricted period before buying the shares in a public offering, the Securities and Exchange Commission said in an administrative order today. The firm made $816,184 in profit on the 2008 trades, the SEC said.
SEC rules prohibit investors from selling short a stock, a bet that its price will fall, within five business days of participating in a public offering of the same security. The provision, known as Rule 105, aims to prevent investors from artificially depressing the price shortly before the sale.
In settling the claims, Fontana and his firm didn’t admit or deny the SEC’s allegations. Lisa Wood, Fontana’s attorney at Foley Hoag LLP in Boston, didn’t immediately comment.
Fontana Capital sold short 40,000 shares of Merrill on July 25, 2008, at $27.30 per share, the SEC said. When Merrill, now part of Bank of America Corp., offered shares for $22.50 four days later, the investment firm bought 200,000 shares and made a profit of $507,184. The firm made $160,000 in similar trades in Wells Fargo shares and $149,000 from an XL Group offering, according to the order.
The SEC filed an administrative order against Fontana Capital in January, alleging the firm had made more than $1 million in unlawful profits on the transactions.
Editors: Lawrence Roberts, William Ahearn