Miami, Florida: In a insider trading bust today, the Securities and Exchange Commission (SEC) charged a Miami based trader for trading in the stock of Chinese company and for conducting an illegal short sale in the securities of three other companies.
According to the allegations by the SEC, Charles Raymond Langston III had previously learned confidential information about AutoChina International’s stock. The new was obtained by Mr. Langston prior to a general announcement, which would subsequently significantly lower the stock of the Chinese firm. Later when Langston was approached by placement agents he promptly sold the 29,000 shares short. Collecting $198,108 from the illicit trading, Langston violated an agreement he had in place to keep the information which he had learned confidential and to not trade until after the company had made a public announcement.
“Langston agreed to keep confidential the information he learned from AutoChina’s placement agent and abstain from trading on it. Yet he chose to place personal greed ahead of the integrity of the securities markets,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.
Fully aware of the duplicity and the illegal nature of his actions Langston attempted to hide the transactions. He made the trades through a separate entity, owned by himself, than the entity with which he had purchased the shares. He also use a different broker and a different account to help cover his tracks.
The SEC’s complaint filed in federal court in Miami further alleges that Langston and two of his companies, Guarantee Reinsurance and CRL Management, violated Rule 105 of Regulation M, which prohibits the short sale of an equity security during a restricted period. The restricted period is traditionally five business days before a public offering. The regulation further prohibits the purchase of that same security through the same offering. The rule has been put in place to prevent the reduction in proceeds received by a company through artificially decreasing its share value by illegally selling the shares short before the company places its public offering. Langston and his companies, Guarantee Reinsurance and CRL Management, made an unlawful gain of around $1.3 million.
“During restricted periods, Langston and his companies executed short sales that gamed the system and resulted in illegal profits. The SEC is resolutely committed to pursuing those who violate Rule 105.” said Glenn S. Gordon, associate director for enforcement in the SEC’s Miami Regional Office.
This case is likely to reach a swift conclusion as Langston has agreed to a settlement to the insider trading charges in the amount of $193,108, prejudgment interest of $22,204, and a penalty of $193,108. Langston and the two companies also agreed to be enjoined for the short selling violations with monetary sanctions to be determined by the court at a later date. Langston, however, neither admits nor denies that he violated any SEC regulations.
Illicit behavior for profit is not uncommon in the share market world, which is why sharing information is a dangerous habit. Only giving information to trusted insiders, who cannot and will not benefit from the inside knowledge is a safety net that all companies must have when dealing with public offerings to avoid having their shares priced lower than they are worth due to the unscrupulous dealings of traders like Charles Langston.