UNITED STATES OF AMERICA

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Before the

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SECURITIES AND EXCHANGE COMMISSION

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SECURITIES EXCHANGE ACT OF 1934Release No. 62982 / September 23, 2010INVESTMENT ADVISERS ACT OF 1940Release No. 3086 / September 23, 2010ADMINISTRATIVE PROCEEDINGFile No. 3-14066In the Matter of Carlson Capital, L.P.Respondent.ORDER INSTITUTING ADMINISTRATIVEAND CEASE-AND-DESIST PROCEEDINGSPURSUANT TO SECTION 21C OF THESECURITIES EXCHANGE ACT OF 1934AND SECTION 203(e) OF THEINVESTMENT ADVISERS ACT OF 1940,MAKING FINDINGS, AND IMPOSINGREMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDERI.

The Securities and Exchange Commission (“Commission”) deems it appropriate and in thepublic interest that public administrative and cease-and-desist proceedings be, and hereby are,instituted pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”) andSection 203(e) of the Investment Advisers Act of 1940 (“Advisers Act”), against Carlson Capital,L.P. (“CCLP” or “Respondent”).

II.

In anticipation of the institution of these proceedings, CCLP has submitted an Offer of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purposeof these proceedings and any other proceedings brought by or on behalf of the Commission, or towhich the Commission is a party, and without admitting or denying the findings herein, except asto the Commission’s jurisdiction over Respondent and the subject matter of these proceedings,which are admitted, Respondent consents to the entry of this Order Instituting Administrative and

Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 andSection 203(e) of the Investment Advisers Act of 1940, Making Findings, and Imposing RemedialSanctions and a Cease-and-Desist Order (“Order”), as set forth below.

III.

On the basis of this Order and Respondent’s Offer, the Commission finds that:

Summary

These proceedings arise out of violations of Rule 105 of Regulation M of the Exchange Actby CCLP, a registered investment adviser and manager of hedge funds based in Dallas, Texas. Rule105 prohibits buying an equity security made available through a public offering from anunderwriter or broker or dealer participating in the offering after having sold short the same securityduring a restricted period (generally defined as five business days before the pricing of the offering).The rule provides an exception for the purchase of an offered security in an account that is“separate” from the account through which the same security was sold short.CCLP makes investment decisions through various strategies, each with dedicated portfoliomanagers. On four occasions in 2008, CCLP bought offered shares from an underwriter or brokeror dealer participating in a public offering after having sold short the same security during therestricted period. In three of these instances, the same CCLP portfolio manager or analyst whodirected the short sales also directed the purchase of the offered shares. In the fourth instance, aCCLP portfolio manager from one firm strategy directed the purchase of offered shares after aportfolio manager from another strategy sold short the same security during the restricted period.Because of the firm’s structure, the firm’s trades do not qualify for the separate accounts exceptionunder Rule 105. CCLP’s violative conduct with respect to all four offerings collectively resulted inunlawful profits or loss avoidance of more than $2.25 million.

Respondent

1. Carlson Capital, L.P. is a Delaware limited partnership with its principal office inDallas, Texas. It manages several funds and private accounts, and trading described in this Orderrefers to trading by the firm on behalf of those funds or private accounts. The firm has beenregistered voluntarily with the Commission as an investment adviser since 2001 and currentlymanages approximately $5.1 billion in investor assets.

Legal Framework

2. As amended in 2007, Rule 105 of Regulation M provides in pertinent part:In connection with an offering of equity securities for cash pursuant to aregistration statement or a notification on Form 1-A . . . or Form 1-E . . .filed under the Securities Act of 1933 (“offered securities”), it shall be2

unlawful for any person to sell short . . . the security that is the subject of theoffering and purchase the offered securities from an underwriter or brokeror dealer participating in the offering if such short sale was effected duringthe period (“Rule 105 restricted period”) . . . [b]eginning five business daysbefore the pricing of the offered securities and ending with such pricing . . ..17 C.F.R. § 242.105(a); Short Selling in Connection with a Public Offering, Exchange Act ReleaseNo. 56,206, 72 Fed. Reg. 45,094, 45,107 (Aug. 10, 2007) (“Adopting Release on Rule 105”).3. Subsection (b)(2) of Rule 105 provides that the rule does “not prohibit the purchaseof the offered security in an account of a person where such person sold short during the Rule 105restricted period in a separate account, if decisions regarding securities transactions for eachaccount are made separately and without coordination of trading or cooperation among or betweenthe accounts.” 17 C.F.R. §242.105(b)(2). The Commission’s adopting release on Rule 105 statesthat it uses “account” as a “general term” that can include diverse types of “separate accounts”such as “portions of a fund,” a “unit,” “departments,” and “identifiable divisions.” AdoptingRelease on Rule 105, 72 Fed. Reg. at 45,098 n. 64.4. Rule 105 applies irrespective of the short seller’s intent in effectuating the shortsale. “The prohibition on purchasing offered securities . . . provides a bright line demarcation of prohibited conduct consistent with the prophylactic nature of Regulation M.” Id. at 45,096. TheCommission adopted Rule 105 in an effort to prevent manipulative short selling prior to a publicoffering and, therefore, “to foster secondary and follow-on offering prices that are determined byindependent market dynamics.” Id. at 45,094.

CCLP’s Structure and Operations

5. CCLP makes investment decisions through strategies that are run by one or moreportfolio managers supported by analysts and traders. During the relevant period, the firm’sstrategies included Relative Value Arbitrage (“Relative Value”) and Risk Arbitrage, among others.Each strategy’s investment positions were allocated across the firm’s funds and accounts accordingto ratios established by the firm, depending on whether the fund or account subscribed to theparticular strategy.

Respondent’s Violations of Rule 105 of Regulation M

6. From May to November 2008, CCLP violated Rule 105 with respect to four follow-on or secondary offerings collectively resulting in unlawful profits or loss avoidance of more than$2.25 million.3