On July 7, 2009, the United States District Court for the Southern District of New York, after a bench trial, entered a permanent injunction against Cary G. Brody and two entities he controlled, the hedge fund Colonial Fund LLC and its adviser, Colonial Investment Management LLC.  The court found that the defendants engaged in illegal trading in violation of Rule 105 of Regulation M under the Securities Exchange Act of 1934, which prohibits manipulative trading by short sellers prior to registered offerings, with regard to 18 registered public offerings.  The defendants violated the rule by purchasing shares in the offerings to cover short sales they made during the restricted periods, thereby making over $1.4 million in profits.  The court also imposed a fine of $450,000.  We outline the various problems presented, including the Fund’s faulty internal compliance and accounting practices and its attempts to claim that it relied on the advice of counsel.