The Securities and Exchange Commission (SEC) has instituted cease-and-desist proceedings against Contrarian Capital Management, L.L.C. (“Contrarian”) for violating Rule 105 of Regulation M under the Securities Exchange Act of 1934. Contrarian, a registered investment adviser based in Greenwich, Connecticut, purchased shares of stock for its investment advisory clients in two public offerings of securities after effecting short sales in the same stocks in one or more advisory client accounts during Rule 105’s defined restricted period without an applicable exception.

Between April 2020 and June 2020, Contrarian caused its advisory clients to sell call options, which were exercised during the restricted period, resulting in short sales being booked to their accounts to fulfill their obligations under the options contracts. Contrarian then purchased offering shares for its advisory clients at a discount to the market price, resulting in gains of $351,726.86 for its advisory clients.

Contrarian’s actions violated Rule 105, which prohibits purchasing equity securities from an underwriter, broker, or dealer participating in a public offering of securities covered by Rule 105 if the purchaser sold short the security that is the subject of the offering during the restricted period as defined in the rule, absent an applicable exception.

In response to the SEC’s investigation, Contrarian undertook certain remedial acts, including revising its written procedures to address short sales resulting from options assignments. Contrarian has agreed to cease and desist from committing or causing any violations of Rule 105 and has agreed to pay disgorgement of $351,726.86, prejudgment interest of $29,600.50, and a civil money penalty of $140,000.00 to the SEC for transfer to the U.S. Treasury.