Boca Raton men settle illegal shorting charges with the SEC

By Palm Beach Business.com

BOCA RATON — Two Boca Raton men have agreed to pay a combined $1.5 million to settle illegal short-selling charges brought this week by the Securities and Exchange Commission.

The action is the first of its kind under new rules intended to curb abusive short selling by investors who are not in the securities industry. Short selling essentially is a bet that the stock of a particular company will decline in value.

Adams and Grabler, according to the SEC, were shorting companies conducting secondary stock offerings. The two would short the companies before the offering price for the shares were set, artificially depressing the stock price. They then would buy the  offered shares, violating SEC rules intended to prevent this practice known in the securities industry as "shorting into the deal."

Over two years, Grabler  used this strategy 119 times and made more than $636,000; Adams used it 94 times, and made more than $331,000, according to the SEC.

"Grabler and Adams engaged in a trading strategy that by its very nature violates the SEC's rules," said David P. Bergers, director of the SEC's Boston Regional Office.

Grabler and Adams settled with the SEC without admitting or denying the charges, and both agreed not to violate the rule again. Grabler will pay more than $988,000 to settle the SEC's charges, and Adams will pay more than $514,000.