July 28, 2014 — Short selling regulations like rule 105 exist to protect the marketplace from manipulative trading activity. Traders are not permitted to short sell equity shares during a restricted period of time ahead of a public offering. To discourage short selling violations, and other violations in the financial sector, the U.S. Congress established a whistleblower program as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010. Tipsters who notify the Securities and Exchange Commission (SEC) about securities violations may be entitled to a reward for their courage in collaborating with the government. Informants receive as much as thirty percent of the funds the government recovers based on the whistleblower’s unique information, provided the total recovery tops $1 million.
Jeffrey Lynn Allegedly Recruited Traders To Make Trades On His Behalf Involving Rule 105 Violations
Five traders from New York, New Jersey, Georgia and Florida have been charged by the SEC with short selling violations during trades both for themselves and for Worldwide Capital Inc., a New York proprietary firm.
In March, Worldwide Capital and Jeffrey W. Lynn, Worldwide’s owner, consented to a $7.2 million settlement to resolve SEC charges involving rule 105 violations. The rule bars the short sale of equity securities during a set period of time — usually five business days prior to a public offering — and the later purchase of the same securities through the public offering.
The SEC charged that Tina Lizzio, Carmela Brocco, Derek W. Bakarich, Steven J. Niemis and William W. Vowell had all used an account in Worldwide’s name at small broker-dealers to sell shares short during the restricted period and then used trading accounts in their own names or in the names of alter ego entities at large broker-dealers to buy offering shares. Lynn allegedly recruited the five traders himself to act on behalf of Worldwide, the entity through which Lynn invested and traded his personal money.
Between August 2009 and March 2012, the five traders committed the rule 105 violations in relation to at least nine separate offerings. Their ill-gotten gains range from $16,000 to over $200,000. To settle the SEC charges against them, the traders will collectively pay almost $750,000.
Whistleblowers Collaborate With SEC On Rule 105 Violations
Traders like those in this case who are pressured to engage in short selling schemes that violate rule 105 need to understand the Dodd-Frank whistleblower process prior to notifying the government. While Waters & Kraus did not handle this particular case, we are handling similar cases. If you have similar claims against a different proprietary trading firm or securities traders, contact us or call our attorneys at 855.784.0268. The SEC fraud lawyers at Waters & Kraus, like Paul Lawrence in the Washington D.C. area office, have years of experience safeguarding tipsters’ rights in whistleblower cases.
Contact us by email us or phone our securities fraud lawyers at 855.784.0268 to learn how we can assist you.