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The New York hedge fund adviser Sandell Asset Management has agreed to pay more than $8 million to settle charges that it engaged in improper short sales in connection with the merger of Hibernia and Capital One Financial, securities regulators said on Wednesday.
Thomas Sandell, chief executive of Sandell Asset Management, or SAM, also agreed to pay a $100,000 civil penalty to settle related charges, the Securities and Exchange Commission said.
The defendants settled with the S.E.C. without admitting or denying the charges.
The S.E.C. said that Sandell Asset, its chief executive and two other employees engaged in the short sales, believing that Capital One would lower its offering price for shares of Hibernia, a bank holding company based in New Orleans, in the wake of Hurricane Katrina in 2005.
The S.E.C. said Sandell Asset held a long position in Hibernia as part of its merger arbitrage investment strategy, and began to sell short as many Hibernia shares as possible to offset an anticipated loss to a client.
Short sellers borrow shares of stock they see as overvalued, sell them and wait for the price to fall. If it does, they buy back the shares, return them and pocket as profit the spread between the sale price and the buyback price.
The S.E.C. said that Sandell Asset’s senior managing director, Patrick Burke, and its head trader, Richard Ecklord, also settled in the case, agreeing to pay $50,000 and $40,000 civil penalties, respectively.