Fast and Loose . . . and Short

Swiss Re Financial Products Corp., a subsidiary of the world's largest reinsurer, has agreed to pay more than a half million dollars to settle securities regulators' allegations that it illegally short-sold stocks while also taking them public.

The Securities and Exchange Commission announced the settlement with the Swiss Re subsidiary today. The S.E.C. noted that Swiss Re Financial Products hadn't admitted nor denied the commission's findings that it sold securities short within five business days of pricing the I.P.O.'s, then covered the sales, either partially or completely, with shares it got in the offerings.

That is forbidden under a 1996 regulation "intended to prevent manipulative short selling prior to a public offering by short sellers who cover their short positions by purchasing securities in the offering, thus largely avoiding exposure to market risk."

"Such short sales could result in a lower offering price and reduce an issuer's proceeds," the regulation states.

The company, a New York unit of Zurich-based Swiss Re, profited from all but one of 13 transactions between mid-2003 and early 2005, according to the settlement filed in federal court in Manhattan. Federal regulators said traders booked total profits of $380,517.

Among the stocks being shorted were those issued by Estee Lauder, Monster Worldwide, Nextel Partners, Wesco International, and Taiwan Semiconductor Manufacturing. The companies themselves were not parties to the trades in question.

In the Nextel case, which regulators said was typical, the Swiss Re company selling short 150,000 shares before covering its position with part of an allocation of 400,000 shares in the offering the next day. It made nearly $80,000, quickly and virtually risk-free.

Federal officials did not name the traders, whom they said worked in New York and London. But the complaint noted that Swiss Re Financial Products no longer employs them.

The settlement calls for the company to pay a $95,000 penalty along with disgorging another $457,605.

Elizabeth Olson