The Commission's complaint, filed in the United States District Court for the Eastern District of New York, alleges that during 2001 Pollet traded in the shares of ten public companies that either engaged in, or were contemplating engaging in, PIPE financings after receiving confidential non-public information about the upcoming PIPE transaction. Specifically, Pollet routinely sold short the publicly traded securities of these PIPE issuers prior to the close of the PIPE transaction in order to lock in gains for SG Cowen's proprietary account. As a result of Pollet's illicit trading, SG Cowen locked in over $4 million in trading profits, in addition to other gains SG Cowen made on the transactions. In several instances, SG Cowen also acted as the PIPE issuer's investment banker.
The Commission's complaint also alleges that, in several instances, Pollet's short selling was directly contrary to representations that SG Cowen made to PIPE issuers in connection with the PIPE transactions. For example, SG Cowen specifically represented to some of the PIPE issuers that SG Cowen would not short sell the securities of such issuer prior to the close of the PIPE transaction. SG Cowen also represented to each of the PIPE issuers that it was acquiring the PIPE securities with investment intent. SG Cowen made these representations at a time when Pollet had already started to short sell the securities of these PIPE issuers.
Mark K. Schonfeld, Director of the Commission's Northeast Regional Office, said, "While PIPE transactions may help a company meet its financing needs, they also create opportunities for fraud. This case sends the message that we will actively patrol this area so that issuers and investors alike can have confidence in these financing vehicles."
David Rosenfeld, Associate Regional Director of the Commission's Northeast Regional Office, added: "Individuals who receive confidential information about important financing transactions must refrain from trading based on that information. This case was particularly egregious because there were specific representations made to the PIPE issuers that SG Cowen would not or had not engaged in short selling prior to the close of the transaction."
The complaint alleges that through his fraudulent trading Pollet violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission is seeking injunctive relief, disgorgement of all ill-gotten gains plus pre-judgment interest, and civil penalties.
The staff acknowledges the assistance of the U.S. Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation in this matter.
The Commission's investigation is continuing.
See also: Litigation Release
