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Gartmore fined $1.35m by SEC for short-selling breach

Gartmore has been fined $1.35m by the Securities and Exchange Commission for breaching its short selling rules.

Gartmore has been given 14 days to pay a civil money penalty of $375,000, disgorgement of $928,117.83, and a prejudgement interest of $44,134.68 to the United States Treasury.

The fine is in relation to a breach of Rule 105, which prohibits short selling of equity securities during a restricted period prior to a public offering and then purchasing the same securities in the public offering. The breach was made in May 2009 when the group affected short sales within the restricted period when the firm participated in a public offering by BB&T Corp. This resulted in profits of $928,117.83.

Gartmore made the breach through its AlphaGen RhoCas fund, one  of a number of funds it acts as investment adviser to.

According to the SEC, Gartmore sold short a total of 172, 405 shares of common stock for BB&T for RhoCas at prices ranging between $25.22 and $27.38 per share between May 6 and May 12, 2009. BB&T announced a public secondary offering of common stock at the close of business on May 11. This was priced on May 12, 2009.

Gartmore purchased 145,000 shares in BB&T common stock in the offering for RhoCas at $20 per share on May 12, 2009. Gartmore covered part of its short position in BB&T stock with shares bought in the offering. Gartmore violated rule 105 by selling short shares in BB&T during the restricted period and then purchased shares in the offering.

The SEC says that at the time Gartmore had no policies, procedures or controls in place which were designed to detect or prevent the rule violations. It says that upon learning of the violation, Gartmore introduced policies, procedures and training programmes related to its rule 105 compliance.

The fine is the latest problem faced by the firm which has endured a difficult 2010. Last month saw the retirement of star fund manager Roger Guy from day-to-day fund management, while CIO Dominic Rossi left to join Fidelity. It was also announced that the firm was undergoing a strategic review that may see Gartmore sold or merged. A number of potential suitors have already been touted for the firm.


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