U.S. securities regulators brought enforcement actions with 23 firms Tuesday, including Ontario Teachers Pension Plan (OTPP), for improperly participating in offerings after selling short the same stocks.

The U.S. Securities and Exchange Commission (SEC) announced enforcement actions against 23 firms for short selling violations, noting that it is increasing its focus on preventing firms from improperly participating in public stock offerings after shorting the stocks, which, it says, typically results in illicit profits for the firms.

The enforcement actions are being settled by 22 of the 23 firms charged, resulting in more than US$14.4 million in monetary sanctions, the SEC says. One firm is disputing the allegations. In that case, the SEC is seeking full disgorgement of the trading profits, prejudgment interest, penalties, and other relief.

In its case, Teachers agreed, without admitting or denying the violations, to pay disgorgement of US$144,898, prejudgment interest of US$11,642, and a penalty of US$68,295.

The firms charged in these cases allegedly bought offered shares from an underwriter, broker, or dealer participating in a follow-on public offering after having sold short the same security during the restricted period.

SEC rules, which prohibit the short sale of an equity security during a restricted period, and the purchase of that same security through the offering, aim to promote offering prices that are set by natural forces of supply and demand rather than manipulative activity. It prevents short selling that can reduce the proceeds received by companies by artificially depressing the market price shortly before the company prices its public offering.

“The benchmark of an effective enforcement program is zero tolerance for any securities law violations, including violations that do not require manipulative intent,” said Andrew Ceresney, co-director of the SEC’s division of enforcement. “Through this new program of streamlined investigations and… we are sending the clear message that firms must pay the price for violations while also conserving agency resources.”

The SEC also issued a risk alert to highlight risks to firms from violating these rules.