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Regulation

Millennium Management agrees to $639,000 settlement on illegal short-selling charges

Updated with correction

Millennium Management agreed to pay $639,000 to settle charges of illegal short selling ahead of stock offerings, said a news release issued Tuesday by the SEC.

During an investigation, the Securities and Exchange Commission said it found that Millennium had violated federal securities laws known collectively as Rule 105 four times in 2012.

The SEC's news release said Millennium's problematic short-selling activity involved stock offerings by Raymond James Financial, Capital One Financial, Susser Holdings and Charter Communications.

Millennium's actions resulted in "illicit profits" of $287,000, the SEC said in the release.

Rule 105 prohibits short selling an equity security during the five-business-day restricted period before a covered offering and then purchasing the same stock through the public offering.

In an administrative proceeding document, the SEC explained that Millennium's investment structure is based on multiple separate portfolio management teams that do not have access to the list of positions and activities of other teams.

Rule 105's separate accounts exception allows for the purchase of the offered security in one portfolio if there was a short sale in portfolio provided "decisions regarding securities transactions for each account are made separately and without any coordination of trading or cooperation among or between the accounts," according to the SEC administrative proceeding document.

However, the SEC ruled that Millennium's structure does not qualify for the exemption because the firm's executives who oversee the portfolio management teams could review each group's holdings and trading activity through the firm's proprietary order entry and portfolio management system and "had the authority to set the trading strategies that were executed" by each team, the document showed.

"Millennium established and maintained certain accounts that improperly participated in public offerings despite other firm accounts being short the relevant securities," said Sanjay Wadhwa, senior associate director of the SEC's New York office, in the news release.

Tripp Kyle, a Millennium spokesman, declined comment on the settlement.

Millennium manages about $34.3 billion in hedge fund assets.