SEC Charges Broker-Dealers With Illicitly Profiting in Partial Tender Offer

Partial Tender Offer

Bluefin Trading LLC and Critical Trading LLC were charged by the Securities and Exchange Commission (SEC) on December 18, 2019, for violating what is known as the “short tender rule” and “enriching themselves at the expense of other participants in a partial tender offer.” Both of these trading companies are based in New York, New York. The partial tender offer in question regards the common stock of Lockheed Martin Corp., which is known for making weapons.

According to the SEC’s Cease and Desist Order against Critical Trading LLC, the company violated Exchange Act Rule 14e-4, also known as the “short tender rule”. “Under Rule 14e-4, a person participating in a partial tender offer may not tender more shares than its net long position. In July 2016, Lockheed Martin Corp. commenced a partial tender offer for shares of its common stock. On August 15, 2016– the day before the expiration of the partial tender offer– Critical, a broker-dealer registered with the Commission, tender 55,500 Lockheed shares on its own behalf while having a net long position of only 5,500 shares. In so doing, Critical tendered 50,000 shares in excess of its net long position in Lockheed, thereby unlawfully profting at the expense of others in the offer and willfully violating Exchange Act Rule 14e-4”. Critical Trading has been ordered to cease and desist from violating 14e-4 in the future, censured by the SEC, and ordered to pay disgorgement and penalties totaling upwards of $200,000.

Similar details for Bluefin Trading are not yet disclosed, but they were found to have done the same thing and ordered to pay almost $300,000 in disgorgement and penalties.

This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

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