NYT – The Securities and Exchange Commission announced on Tuesday two enforcement actions against hedge funds that had profited by shorting stocks just before they bought shares of the same stock in a public offering. The agency said they were the first enforcement actions since a rule against abusive short-selling was strengthened.
Public companies raising additional capital in secondary stock offerings normally price those offerings below the going market price. That means that someone who sold short just before the offering and then bought shares in the offering can lock in a guaranteed profit.
