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July 08, 2006
Hedge Fund Investigated for Short Sales
HBK Investments, a $7 billion hedge fund based in Dallas is the subject of scrutiny by the Securities and Exchange Commission (SEC) for the part it played in a series of short sales in 2003. Short sales are gambles on the market that the price of certain stocks will fall. HBK bought millions of shares of Plug Power, a fuel-cell manufacturer based in New York, in November 2003 at a 14 percent discount of their market value. Another transaction of HBK’s that has come under the SEC scanner is the money it paid outsourcing company PFSWeb. HBK was one of the investors that helped the Texas-based firm raise $3.5 million. The Street reports:
HBK is one of the largest hedge funds to draw scrutiny in the two-year-old investigation into manipulative trading in the $20 billion-a-year market for PIPEs, or private investments in public equity. In a typical PIPE deal, a small, cash-strapped company raises cash by selling discounted stock, or a bond that converts into discounted shares, to a group of hedge funds. Shares of a company doing a PIPE usually decline in anticipation of a flood of discounted stock coming into the market.
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