HBK Talks Settlement

To date, the stiffest penalty imposed by regulators probing allegations of improper trading in the $20 billion-a-year PIPEs market was a $16 million sanction earlier this year against Jeffery Thorp and his Langley Capital hedge fund. The SEC charged Thorp with manipulating shares of nearly two dozen small-cap companies, all of which had raised money by selling discounted stock in PIPE deals.

The fine against Thorp has become the SEC's baseline for meting out penalties against hedge funds found to have repeatedly engaged in improper trading in the PIPEs market, say people familiar with the investigation. The $16 million penalty amounted to roughly twice the profits that Thorp's hedge fund generated from investing in the scrutinized PIPE deals over a two-year period.

Over the past 5 1/2 years, HBK has invested $598 million in 104 PIPE deals, according to PlacementTracker. People familiar with HBK and the PIPEs market say it's reasonable to assume that HBK made between $50 million and $75 million from those investments. It's not clear, however, how many of those PIPE deals the SEC is looking into.

In July, TheStreet.com reported that the SEC was looking into a series of short sales allegedly made by HBK just days before it invested in 2003 in a $58 million private sale of stock by a company called Plug Power(PLUG Quote). HBK was one of eight hedge funds that paid cash to acquire millions of shares of the Latham, N.Y., fuel-cell maker at a 14% discount to the then-market price of $5.79 a share.