BayStar Being "Scrutinized" by the SEC

Thursday, July 08 2004 @ 02:45 PM EDT

Contributed by: PJ

"The SEC is investigating 20 instances in which hedge funds may have used insider information to profit from coming stock offerings", the Wall St. Journal reports. And guess who is on the list?

BayStar Capital.

Here's what the Journal is reporting:

"The SEC is investigating whether hedge funds, tipped off to Pipe deals by brokers looking for interested buyers, made bets against the companies' stocks before the deals were consummated and disclosed publicly -- through the legal practice of 'shorting,' or selling borrowed shares in a bet that those companies' stock prices would decline."

The investigation began a couple of months ago. Puts a conceivable new slant on the posturing in the press recently, huh?

The Wall Street Journal has more:

"The SEC's investigation was launched several months ago by its office of compliance and inspections, or OCI.

"The unit sent out 22 requests for documents relating to Pipe deals to securities brokers and placement agents. In recent weeks, the unit referred details of roughly 20 instances in which it believes there may be violations of securities law to the SEC's enforcement unit, the people said.

"The enforcement unit has the ability to bring charges and lawsuits against firms and individuals involving alleged securities-law violations. It is uncertain whether the SEC will decide to bring charges relating to the suspicious trading detected by its OCI examiners.

"The brokerage firms and dealers whose Pipe activities the SEC is scrutinizing include Bank of America's Banc of America Securities LLC; Societe Generale's SG Cowen Securities Corp.; Piper Jaffray Cos.; and Jefferies Group Inc., the people said. Among the other firms being looked at are Roth Capital Partners LLC; Rodman & Renshaw LLC; and Sunrise Securities LLC, they said. Investors whose trading is under scrutiny include BayStar Capital, a California hedge fund. The SEC hasn't named formal targets of the investigation, however."

The investigation of PIPE deals was prompted in part by complaints from "a large mutual fund" whose traders had noticed a pattern, five small companies whose stocks declined before a public announcement of a PIPE deal. It's normal for a post-announcement dip to occur, but not just before.

If you don't have a subscription to the Journal, you can read all about it on, plus a great deal more, unrelated to BayStar, so far as I know, about short selling on the German markets and some finger-pointing at the SEC, hints of the underworld, and news of an upcoming Dateline expose called "Stockgate". Heavens to Betsy! It's enough to make a girl's head spin.