According to FINRA, Barclays Capital Inc. was censured, fined $100,000, and ordered to pay disgorgement of $218,803.52 in ill-gotten gains for over-tendering shares in a company because it miscalculated its long position.

The firm was found in violation of Rule 14e-4 of the Securities Exchange Act of 1934, which prohibits tender offer participants from tendering more shares than they own (over-tendering). When tendering shares, Barclays manually calculated its long position using several different systems. The firm miscalculated its long position because it missed a short position housed in another system, used an incorrect final tender price when calculating share calls required to be deducted from the long position, and miscalculated grandfathered calls, giving the firm credit for shares it should not have included. As a result, the firm received $218,803.52 in ill-gotten gains from over-tendering.

Additionally, the firm failed to have a supervisory system reasonably designed to achieve compliance with Rule 14e-4. While Barclays had certain procedures for calculating and reviewing net long positions, these procedures were primarily operational and did not include a supervisory review regarding compliance with Rule 14e-4. Rule 14e-4 serves important investor protection purposes by preventing manipulation of tender offers and ensuring fair treatment of all shareholders. Over-tendering can distort tender offer prices and disadvantage other shareholders seeking to tender their shares.

Tender offers occur when an entity offers to purchase shares directly from shareholders, typically at a premium to the current market price, often in connection with acquisition attempts. The rule against over-tendering prevents firms from gaining an unfair advantage by submitting more shares than they actually own. This case demonstrates the importance of firms implementing adequate supervisory systems that include both operational controls and supervisory review to ensure compliance with securities laws. Firms must maintain accurate position records across all systems to prevent inadvertent violations.