Anson Funds Enters $3.3 Million Settlement With SEC

The Securities and Exchange Commission has announced that it has settled charges against Anson Advisors Inc. (AAI), a Canada-based company. AAI was found to be in violation of an SEC trading rule when it purchased stock in three public offerings for private fund clients after short selling the same stock for those clients during a time when the SEC rule prohibited such purchases.

The SEC’s order determined that AAI violated Rule 105 of Regulation M under the Securities Exchange Act of 1934. Rule 105 prohibits short selling an equity security during a restricted period, typically five business days before a covered public offering, and then purchasing the same security in the offering without an exception. This rule is in place to prevent potentially manipulative short selling before the pricing of covered offerings.

AAI’s violations of Rule 105 occurred during three follow-on offerings in December 2019, June 2020, and April 2021. These violations were a result of AAI’s incorrect understanding of how to comply with an exception to Rule 105. AAI has since taken remedial steps, including revising its Rule 105 policies and procedures.

In one instance, during the American Airlines Group Inc. follow-on equity offering in June 2020, AAI conducted short sales of American Airlines common stock during the restricted period and then purchased the same stock after an incorrect understanding of the BFP Exception. This resulted in a violation of Rule 105, leading to profits for the Anson Funds.

In December 2019 and April 2021, AAI engaged in similar trading activities for other securities on behalf of certain Anson Funds, also violating Rule 105 due to the misapplication of the BFP Exception.

Without admitting or denying the findings, AAI has agreed to cease and desist from violating Rule 105 and will pay disgorgement of $2,469,109.11, prejudgment interest of $261,285.20, and a civil penalty of $600,000.

Early in March 2022, Anson Funds was reportedly subpoenaed by the Department of Justice in relation to an ongoing short selling probe being conducted against a swath of short sellers in the space.

Correction: A previous version of this article mistakenly stated that Anson Funds was reported to have been subpoenaed by the Department of Justice in March 2023. This has since been corrected to March 2022. A tweet was also removed that referenced Anson being “charged by the SEC” rather than “settling.” We apologize for the error.

Information for this story was found via SEC and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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