On December 3, 2013, the SEC announced that it had charged a Miami-based trader with insider trading in the stock of a Chinese company and conducting illegal short sales in the securities of three other companies.
The SEC alleged that Charles Raymond Langston III learned confidential information in advance of a public announcement that significantly decreased the value of AutoChina International’s stock. Langston was solicited by placement agents to invest in a secondary offering of AutoChina stock. Despite agreeing to keep information confidential and not trade on it, he promptly sold short 29,000 shares of AutoChina stock in advance of the company’s public announcement that it had completed the secondary offering. To avoid detection, Langston made the trades through an entity he owned using a different broker and different account than he used to purchase shares in AutoChina’s initial offering. Langston made $193,108 in illegal profits by trading on the inside information.
The SEC’s complaint filed in federal court in Miami further alleged that Langston and two of his companies, Guarantee Reinsurance and CRL Management, violated Rule 105 of Regulation M, which prohibits the short sale of an equity security during a restricted period – generally five business days before a public offering – and the purchase of that same security through the offering. The rule addresses illegal short selling that can reduce offering proceeds received by companies by artificially depressing the market price shortly before the company prices its public offering. The SEC alleges that Langston through Guarantee Reinsurance and CRL Management made short sales in advance of separate secondary offerings by Wells Fargo, Mitsubishi UFJ Financial Group, and Alcoa. He purchased shares in the same offerings. Langston and his companies’ violations of Rule 105 resulted in unlawful gains of more than $1.3 million.
According to the SEC’s announcement, Langston has agreed to settle the insider trading charges by paying disgorgement of $193,108, prejudgment interest of $22,204, and a penalty of $193,108. Langston and the two companies also agreed to be enjoined for the short selling violations with monetary sanctions to be determined by the court at a later date. Langston neither admits nor denies the allegations that he violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Rule 105 of Regulation M of the Exchange Act.