SEC Sues Hedge Fund Adviser For Alleged Short-and-Distort Scheme
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- The Securities and Exchange Commission recently filed a civil action against a hedge fund adviser for engaging in an alleged short-and-distort scheme against a pharmaceutical company. The scheme purportedly generated more than $1.3 million in ill-gotten gains for the hedge fund.
- In a short-and-distort scheme, the market manipulator first sells short and then spreads false or misleading information about the target company to induce investors to sell their shares and drive the price down; the manipulator then buys to cover his short position and maximize gains.
- Enforcement actions involving short-and-distort schemes are rare, but this case underscores the SEC’s recent focus on cracking down on market manipulation schemes impacting retail investors, particularly schemes involving the use of electronic and social media to spread false or misleading information.