A WALL Street short-seller was charged by the Securities and Exchange Commission (SEC) on Thursday with spreading false rumours in a case that suggests regulators are taking a fresh look at behaviour that many companies say is now rampant.
The case, which hinges on rumours about a Blackstone takeover deal, comes as the SEC faces growing pressure to investigate allegations that false rumours about Bear Stearns may have contributed to its collapse last month.
After Bear's liquidity evaporated, similar rumours hit Lehman Brothers, leading to a temporary drop in its shares. At the SEC's request, Lehman and other banks sent information to the commission about trading in their securities in the days surrounding Bear's collapse.
The Financial Regulator and the Financial Services Authority in the UK are carrying out investigations into rumour-spreading by short-sellers, with the Irish investigation focusing on Anglo Irish Bank shares.
Rumour-mongering cases are rare and notoriously difficult to prove because they require investigators to track down the initial source of the rumour and produce documentary evidence.
In spite of that, Chris Cox, SEC chairman, said the commission would take firm action against people spreading bogus rumours.
In its case on Thursday, the SEC charged Paul Berliner, a short-seller, with spreading false stories about Blackstone's acquisition of Alliance Data Systems while selling ADS shares short.
According to the complaint, Mr Berliner, on November 29th, sent instant messages to traders at brokerage firms and hedge funds and elsewhere suggesting that Blackstone's agreed deal to acquire ADS for $81.75 (€52.38) a share was being renegotiated at $70 a share. The rumours were picked up by the media and caused ADS's shares to fall 17 per cent, according to the complaint, which did not identify the media outlets.
Mr Berliner agreed to settle the charges without admitting or denying guilt and to disgorge $26,129 in profits and pay a $130,000 fine. He will also be banned from working for any broker or dealer.
The SEC appears to have based its case on Mr Berliner's instant messages. Defence lawyers have expressed concern that many traders believe instant messages and text messages cannot be recovered. - (Financial Times service)
