The Securities and Exchange Commission filed a complaint against Hilary L. Shane in the United States District Court for New York this May, alleging that Shane committed insider trading and registration violations by short selling 122,900 shares of Compudyne in October 2001, prior to the public announcement, but the ex-hedge fund manager has plead not guilty to the charges of insider trading.
Shane, 39, former hedge fund manager at First New York Securities, appeared in U.S. District Court in Manhattan and was released on her own recognizance. She has been charged with five counts of securities fraud and each count holds a maximum sentence of 20 years.
According to the press release, it is stated that usually in a PIPE offering, investors commit to purchase a certain number of restricted shares from a company at a specified price and the company agrees, in turn, to file a resale registration statement so that the investors can resell the shares to the public.
But the Commission’s complaint alleges that on Oct. 8, 2001, the hedge fund manager agreed to purchase shares in the PIPE offering for her personal account and for one of the hedge fund accounts she managed. Shane agreed both orally and in writing to keep the information confidential. The following morning, before the public announcement, Shane began short selling CompuDyne securities in both her personal account and the hedge fund’s account. Shane continued short selling CompuDyne shares, selling the same number of shares, covering all the short sales with the shares obtained in the offering making substantial profits for both accounts.
The total illegal profit from the exchange was $315,000 and the hearing on the criminal charges before Judge Naomi Reice Buchwald is scheduled for Oct. 10. She has also been permanently barred from associating with any NASD registered firm and will pay more than $1.45 million to settle NASD and Securities and Exchange Commission (SEC)
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