By: Cydney Posner

The SEC is now on record that it is "actively patrolling" PIPE transactions for short-sale violations and fraud.

See: Litigation.

The SEC has filed a complaint in the EDNY charging a former managing director of SG Cowen (who was in charge of investing Cowen proprietary funds in PIPE transactions) with insider trading and fraud by selling short prior to the closing on a number of PIPE transactions, including offerings in which Cowen invested.

The complaint alleges that, after receiving confidential non-public information about the upcoming PIPE transaction, the MD routinely sold short the publicly traded securities of PIPE issuers prior to the close of the PIPE transaction in order to lock in gains for Cowen's proprietary account. As a result, Cowen locked in over $4 million in trading profits, in addition to other gains. In some cases, Cowen also acted as the PIPE issuer's investment banker. The SEC also alleges that, in several instances, Cowen covenanted with PIPE issuers not to sell short prior to the close of the PIPE transaction and made investment representations at a time when short sales had already commenced. The complaint involves trading in the shares of 10 public companies, although the investigation is continuing.

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