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In the Matter of Michael T. Jackson

Investment Advisers Act Release No. 2374 (2005)

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In the Matter of Michael T. Jackson

Securities and Exchange Commission
Investment Advisers Act Release No. 2374 (2005)

CS

Facts

In 2000, portfolio managers of EGM Capital (EGM), an investment adviser registered with the Securities and Exchange Commission (SEC), decided to sell all 122,000 shares of the stock of Ivax Corporation held for EGM client accounts. Several days after the 122,000 shares were sold by EGM’s senior trader, a second EGM trader erroneously sold an additional 100,000 shares of Ivax stock for these accounts, which amounted to an unintended short sale of 100,000 shares. After discovering the error, EGM covered the short position by buying 100,000 Ivax shares, resulting in a loss because the price of Ivax stock had increased since the short sale. Michael T. Jackson, EGM’s chairman and chief executive officer, directed that the loss be borne by EGM clients, even though it was caused by EGM’s trading error. Jackson and EGM attempted to conceal the error by making it appear that EGM intentionally sold Ivax shares short for its clients. The SEC brought an administrative proceeding against EGM and Jackson for violations of §§ 206(1) and 206(2) of the Investment Advisers Act of 1940 (Advisers Act).

Rule of Law

Issue

Holding and Reasoning ()

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