Hilary Shane, formerly of First New York Securities, and Michael Finkelstein and Elizabeth Leonard of Toronto-based Stonestreet LP have all been charged with the alleged abuses, according to Reuters. Shane is being charged by the NASD over allegations that he made $1.1 million from inside information on a deal, while the other two are being charged by Canadian regulator Investment Dealers Association on similar charges.
The charges come less than a year after the Securities and Exchange Commission (SEC) and the NASD pursued allegations that hedge funds were profiting from inside knowledge of private investments in public equity – known as PIPE. PIPEs help cash-strapped companies raise money quickly by selling discounted shares to investors. The stock of companies that do this usually falls because of the flooding of the market, which creates an opportunity for profit for short-sellers.
Shane is accused of using inside information of upcoming PIPEs of CompuDyne Corp. to profit illegally. Shane allegedly made false representations about her investment intent and obtained the right to purchase 475,000 shares in the company. She then, with the possession of inside information, short sold the company’s stock.
Finkelstein and Leonard are facing similar charges in relation to a PIPE involving Novatel Wireless Inc. and Trikon Technologies Inc. The two managers short-sold the companies’ stock with inside information on the PIPE, according to Reuters.