SEC nabs short-seller for market abuse

The Securities and Exchange Commission has charged a Wall Street short seller with spreading false rumours.

Paul Berliner, a Wall Street trader formerly associated with Schottenfeld Group LLC, has been charged with securities fraud and market manipulation for intentionally spreading false rumours about The Blackstone Group's acquisition of Alliance Data Systems (ADS) while selling ADS short.

The SEC alleges that five months ago, Berliner disseminated the false rumour through instant messages to numerous individuals, including traders at brokerage firms and hedge funds. The false rumour also was picked up by the media.

Heavy trading in ADS stock ensued, and within 30 minutes the false rumour had caused the price of ADS stock to plummet 17 %.

“The message of this case is simple and direct. The Commission will vigorously investigate and prosecute those who manipulate markets with this witch's brew of damaging rumours and short sales.

SEC Chairman Christopher Cox

In response to the unusual trading activity, the New York Stock Exchange temporarily halted trading in ADS stock. Later in the day, ADS issued a press release announcing that the rumour was false. By the close of trading, the price of ADS stock recovered to its pre-rumour price.

The SEC alleges that Berliner profited by short selling ADS stock during its precipitous decline.

SEC Chairman Christopher Cox, said: ‘The message of this case is simple and direct. The Commission will vigorously investigate and prosecute those who manipulate markets with this witch's brew of damaging rumours and short sales.’

Without admitting or denying the allegations in the SEC's complaint, Berliner agreed to settle the charges against him. He coughed up $26,129 in profits and paid a fine of $130,000. Berliner was also barred from associating with any broker or dealer.