As part of a broader federal investigation into hedge funds that use non-private information obtained during Private Investment in Public Equity (PIPE) offerings in order to short-sell the stock of those companies – a technique that virtually guarantees profits since a PIPE typically drives down the price of public shares – the SEC recently accused hedge fund manager Robert A. Berlacher, and eight hedge funds he managed or advised (the Defendants), of insider trading and securities fraud in connection with four such transactions.  Specifically, it alleged that the Defendants unlawfully traded on non-public information obtained by Berlacher in a PIPE issued by Radyne ComStream, and made material misrepresentations in the PIPE stock purchase agreements (SPAs) Berlacher had signed with Radyne, Hollywood Media, International Display Works (IDWK), and SmithMicro.  On September 13, 2010, the U.S. District Court for the Eastern District of Pennsylvania concluded, following a bench trial, “The SEC has not sustained its burden of proof on the insider-trading count and two of the fraud claims” but “has met its burden on two separate fraud claims” in connection with the Radyne and IDWK transactions because the SPAs for those transactions had prohibited the types of trading in which Berlacher had engaged.  The court ordered Berlacher to disgorge net profits of $352,363.68, but refused to impose civil penalties, pre-judgment interest, or injunctive relief, as sought by the SEC.  We detail the background of the action and the court’s legal analysis.