Morning Brief: Millennium Settles Civil Charges Over Short Selling Rule

November 01, 2017   Stephen Taub

Izzy Englander’s multistrategy firm paid more than $630K to settle the SEC’s charges that it violated an obscure rule related to short selling.

Izzy Englander’s Millennium Management agreed to pay more than $630,000 to settle civil charges over an obscure rule related to short selling, according to the Securities and Exchange Commission. Rule 105 of Regulation M prohibits investors from selling short securities — usually stocks — during a restricted period, usually five business days before a public offering of securities, and then purchasing the securities through the offering. The SEC says the multistrategy firm made $286,889 in "illicit profits" from violating Rule 105 on four occasions in 2012.

"Millennium established and maintained certain accounts that improperly participated in public offerings despite other firm accounts being short the relevant securities," said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office, in a press release.

Millennium agreed to the settlement without admitting or denying the findings. The SEC cracked down on Rule 105 violations several years ago. In September 2014, 19 firms and one individual trader were charged with engaging in this practice. One year earlier, 22 firms agreed to settlements over violations of Rule 105. Millennium declined to comment. The firm, which has $35 billion in assets, has roughly 200 different trading teams.


Marcato Capital Management trimmed the number of directors it is nominating to the board of Deckers Outdoor Corporation in response to the UGGs maker’s decision last week to reduce the size of its board from 10 to nine directors. In addition, Marcato International, the activist hedge fund firm’s offshore fund, sold American-style call options referencing 750,000 common shares, each with a strike price of $80. They are exercisable through January 19, 2018. Shares of Deckers fell 3.4 percent, to close at $68.24. The stock is off nearly 6 percent in the past two days alone after closing Friday at its highest price in about two years.


Shares of hedge fund activist favorite Mondelez International surged 5.4 percent, to close at $41.43. One possible reason: Credit Suisse slightly raised its price target on the snack foods and beverages giant from $46 to $48 and raised its 2017 and 2018 earnings estimates, noting third quarter 2017 results were "better than the market had feared."

In a note, the investment bank told clients, "As we hoped for when we published our earnings preview, management sounded noticeably more upbeat about global economic conditions (especially in Western Europe) and the snacks category in emerging markets. As a result, the company kept its organic revenue guidance relatively intact." Bill Ackman’s Pershing Square Capital Management recently became the third-largest shareholder, while Nelson Peltz’s Trian Fund Management is the fifth-largest shareholder, according to regulatory filings.


Barclays lifted its price target on hedge fund favorite Alibaba Group Holding from $200 to $220 in advance of the Chinese e-commerce giant’s release of fiscal second quarter results on November 2. In a note to clients, the bank said it expects Alibaba to report "solid" results, with top-line growth coming in at 54 percent, slightly above the consensus forecast. At the end of the second quarter, Alibaba had at least 110 hedge fund investors, according to Goldman Sachs.

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