Securities and Exchange Commission Chairman Mary Jo White chastised advisors Tuesday for improperly participating in public offerings soon after short selling those same stocks.

“It is a very important rule but, as our exams discovered, a rule often not observed.  Its objective is to protect a stock offering from potential manipulation by short sellers who artificially depress market prices and guarantee themselves a profit while reducing the company’s offering proceeds and diluting shareholder value.  It is obviously a rule that underlies the integrity of our markets,” she said.

White added the SEC’s enforcement division needs to send a very strong message to curtail the practice.

Despite Congress’s refusal to grant the Obama Administration's request for 250 more SEC investment advisor examiners for fiscal 2014, she said the agency is still going to be pushing for extra staff to boost the rate of roughly 9 percent of advisors reviewed each year.

She said it would be a “challenge” to shift workers around the SEC to fill the void.
Currently, White said there are 450 examiners devoted to investment advisors and investment companies.

Since January, the SEC’s examination unit’s priorities have expanded to include unsuitable sales of high-yield securities, and potential conflicts of interest of investment advisers in allocating trades among their client accounts.

Her remarks came at the National Society of Compliance Professionals’ annual meeting in Washington, D.C.