Terms of Gartmore Settlement with SEC Suggest that in Calculating Disgorgement for Reg M Violations, SEC Will Use a First-In, First-Out Approach

On December 8, 2010, Gartmore Investment Limited (Gartmore), an SEC-registered, U.K.-based hedge fund manager, settled SEC charges that it violated Rule 105 of Regulation M of the Securities Exchange Act of 1934.  The SEC's Order in the matter is brief, but contains at least three important insights for hedge fund managers that, as part of their investment strategy, engage in short sales of public equity and invest in secondary stock offerings.  For background on Rule 105 of Reg M, see "SEC Settlement with Carlson Capital Suggests that Most Hedge Fund Managers with Multiple Strategies or Funds Will Not Be Able to Rely on the 'Separate Accounts' Exception to Rule 105 Under Regulation M," Hedge Fund Law Report, Vol. 3, No. 38 (Oct. 1, 2010); "Appaloosa Management L.P. Settles SEC Allegations of Reg M Violations in Connection with Short Sales," Hedge Fund Law Report, Vol. 3, No. 28 (Jul. 15, 2010); "SEC Obtains Permanent Injunction Against Hedge Fund Colonial Fund LLC for Illegal Short Sales; Opinion Addresses Fund Manager's Faulty Internal Compliance and Accounting Systems," Hedge Fund Law Report, Vol. 2, No. 29 (Jul. 23, 2009).

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