MANHATTAN (CN) – Hedge fund manager Cary Brody made $1.5 million illegally by using shares bought in 18 public offerings to cover short sales made during the five business days before those offerings, the SEC claims in Federal Court. Brody is a principal and managing director of the defendant hedge fund, Colonial Fund, and its defendant “adviser,” Colonial Investment Management.
Brody violated Rule 105, the SEC says. “Short sellers who violate the rule’s prohibitions can profit unfairly because they largely avoid exposure to market risk by using shares purchased at a discount in a registered offering to cover restricted period short sales.” He also concealed the illegal deals by “post-cover sham transactions,” the SEC says. Brody, 37, lives in Connecticut. The SEC wants the money back, penalties and an injunction.