SEC Raps Hedgie in Canadian Short Ploy
By Roddy Boyd
New York Post
January 8, 2007
THE former head of a $200 million New York hedge fund is the latest money manager to get caught in the Securities and Exchange Commission's crackdown on illegal short-selling.
Joseph Spiegel, who ran the $200 million Spinner Global Technology hedge fund, paid a $110,000 fine and accepted a three-year ban from managing money for his role in orchestrating a complex and illegal series of trades in 2002.
He was slammed for a trades intended to hedge three investments the Spinner fund made in PIPEs - Wall Street parlance for private investments in public equity, almost always made by institutions at a discount to a company's stock price.
The agreement makes him the third fund manager in the past two months to be tagged by the SEC for violations related to PIPEs hedging. Spiegel's Spinner fund executed short sales in Canada to get around the fact that it couldn't borrow stock in the U.S. to sell short for hedging purposes.
The Gryphon hedge fund in Dallas was targeted by the SEC in December for similar Canadian trades.
Given that PIPEs are sold at a sharp discount to the prevailing market price, a short sale executed prior to the announcement of an issuance locks in a handsome profit. The equity price of PIPEs issuers usually drops sharply in anticipation of a glut of stock hitting the market.
According to the SEC's complaint, Spiegel used the PIPEs stock to fulfill his obligation to deliver back the stock he had illegally sold short, which is a violation of the law.
Spiegel's violations occurred in three separate trades in 2002. The SEC's complaint said he not only executed the short sales in Canada, but used a series of phony "wash" trades to cover his footsteps.
Also, the complaint said in order to buy large blocks of PIPEs from the underwriter, he made "misrepresentations" that he would not sell or dispose of the PIPE shares for an agreed upon time frame.
Spiegel could not be reached for comment.
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