Ex-hedge fund manager settles trading violation

BOSTON (Reuters) - Former hedge fund manager Forrest Fontana, who once worked for industry titan Steven A. Cohen's SAC Capital Advisors, will pay nearly $1 million to resolve claims that he violated a short-selling rule, the Securities and Exchange Commission said on Friday.

Financial regulators charged that Fontana, whose Boston-based Fontana Capital LLC traded mostly in financial stocks, helped his investors earn unlawful profits of about $816,184 by having participated in public offerings after having shorted the same securities.

According to the government Fontana violated Rule 105 of Regulation M, the U.S. Securities and Exchange Commission said in an order imposing sanctions and a cease and desist order.

Fontana broke the rule on three occasions between July 2008 through November 2008 with trades on XL Group PLC <XL.N>, Merrill Lynch, and Wells Fargo <WFC.N>, the SEC said.

He will now pay a disgorgement of $816,184, prejudgment interest of $3,606 and a civil penalty of $165,000 to the United States Treasury, the SEC said.

Fontana's lawyer was not immediately available for comment.

The SEC has brought a number of these types of cases in the last months and only last week settled a similar matter with hedge fund Level Global, which has been embroiled in the government's insider trading case.

Fontana launched his own business in Boston in 2005 with $50 million in start-up capital from his former SAC boss, Cohen, and quickly generated buzz in the local investment community.

But by 2010, he was effectively out of business, managing no funds for clients and concentrating on his work as one of five selectmen in the town of Winchester, north of Boston.

(Reporting by Svea Herbst-Bayliss)