Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Thursday, April 24, 2008

SEC Settles False Rumors and Short-Selling Charges

The SEC charged Paul S. Berliner, a Wall Street trader formerly associated with Schottenfeld Group LLC, with securities fraud and market manipulation for intentionally spreading false rumors about The Blackstone Group's acquisition of Alliance Data Systems (ADS) while selling ADS short.The SEC alleged that five months ago, Berliner disseminated the false rumor through instant messages to numerous individuals, including traders at brokerage firms and hedge funds. The false rumor also was picked up by the media.  Heavy trading in ADS stock ensued, and within 30 minutes the false rumor had caused the price of ADS stock, trading at approximately $77 per share, to plummet to an intraday low of $63.65 per share - a 17 percent decline. 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 rumor was false. By the close of trading, the price of ADS stock recovered to its pre-rumor price of approximately $77 per share. Berliner profited by short selling ADS stock during its precipitous decline.

Without admitting or denying the allegations in the SEC's complaint, Berliner agreed to settle the charges against him by consenting to the entry of a final judgment enjoining him from future violations of the antifraud and anti-manipulation provisions of the federal securities laws, and requiring him to disgorge $26,129 in profits and interest, pay a maximum third-tier penalty of $130,000, and consent to the entry of a Commission Order barring him from association with any broker or dealer.

http://lawprofessors.typepad.com/securities/2008/04/sec-settles-fal.html

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