Trading in “Follow on Transactions” — Millions in Illegal Profits

Inside information is something that many tend to think of only in the classic insider trading model — participants in a merger or other non-public corporate transaction trading in the company shares prior to the deal announcement. Most do not think about the reverse of such a transaction such as “follow on transaction.” Yet it is essentially the same – trading with material, non-public inside information to garner what are riskless profits. For example, when a firm conducts a follow-on offering, the share price goes down because the addition of more shares to the market dilutes the share price – the share price will drop. The Commission’s latest “inside information” case is built on such transactions. SEC v. Lowe, Civil Action No. 2:25-cv-00260 (E.D.N.Y. Filed Jan 15, 2025).

Named as defendants in this action are a number of individuals and entities: John Lowe, Jr., JJL Capital LLC, Great South Bay Capital, LLC, Randy Grewal, Kierland Capital, LLC Richard Ringel, and David Cooper. The scheme began in 2018 and continued through March 2024. In the scheme Defendant Cooper and Representative A provided Defendants Lowe and/or Ringel with inside information. Defendant Cooper, a registered representative at a broker-dealer, provided Mr. Lowe or Mr. Ringel, with material non-public information concerned the timing and/or price of numerous follow-on offerings of public company stock prior the transaction announcement.

Mr. Lowe also provided information about the timing and/or price of follow-on offerings to Defendant Grewal. He in turn shorted the stock of companies involved before the information was disclosed. Similarly, Defendant Copper and Representative A received material, non-public information about such offerings from employees at underwriting firms that engaged the brokerage firm to be part of a group or selling syndicate that underwriters partnered with to sell allocations of shares of in follow-on offerings. In exchange Defendants Lowe and Ringel agreed to buy shares of stock in the offerings, generating sales credits that the underwriters paid to the brokerage firm which paid Mr. Copper and Representative A. They in turn provided the information to Defendants Lowe and/or Ringel which was prohibited by the broker’s controls.

Overall, Defendant Lowe and his two controlled firms traded through Defendants JJL and Great South Bay, selling short in advance of at least 200 offerings. The trading generated profits of at least $900,000. Defendant Grewal and his associated entity sold short in advance of over 90 offerings, earning at least $140,000. Defendant Ringel and his associated entity and another firm sold short in advance of over 300 offerings, yielding at least $1,500,000 in profits. The brokerage firm earned about $1 million in sale credits. Mr. Cooper received a portion of the compensation. Total illegal profits for the group exceeded $3 million. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 26236 (Feb. 3, 2025).