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Three hedge funds on Thursday settled

Securities and Exchange Commission

charges that they manipulated the shares of public companies selling stock in follow-on offerings.

The settlement is part of an ongoing regulatory investigation into the private placement and follow-on market that was

first reported by this Web site.

Galleon Management will pay about $2 million to cover fines, ill-gotten profits and interest, while Oaktree Capital Management will shell out $345,700 and DB Investment Management will pay about $33,000. The were allowed to neither admit nor deny guilt in the SEC complaint.

Galleon, Oaktree and DB were accused of violating an SEC rule that prohibits investors from using shares received in follow-on offerings to close short positions. Since shares in follow-on offerings, particularly a variety of financing known as public investment in private equity, or PIPEs, are often sold at below-market prices, using them to replace stock borrowed in short sales is a virtually risk-free bet.

"Such short sales can play a major role in contributing to a decrease in a follow-on offering's share price, and can ultimately reduce an issuer's proceeds from the deal by millions of dollars," the SEC said in a release.

The SEC alleged the three funds violated the short-selling rule in 22 follow-on offerings, ringing up combined profits of about $1.2 million. Regulators alleged that Galleon and Oaktree occasionally used sham transactions to hide their use of follow-on shares to cover short bets.