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SEC Orders Advisory Firm to Pay $9M Over Short Sales

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What You Need to Know

  • An advisory firm, its principal officer and trader all agreed to pay $9 million to settle the SEC's charges.
  • The respondents allegedly provided erroneous order-marking information, causing brokers to violate Regulation SHO.
  • The executives also settled charges for causing a dealer to fail to register with the SEC.

An advisory firm, its principal officer and trader have agreed to pay a total of about $9 million to settle charges by the Securities and Exchange Commission that they committed short-sale violations, according to the SEC.

Toronto, Canada-based advisory firm Murchinson; its principal officer, Marc Bistricer; and its trader, Paul Zogala, allegedly provided erroneous order-marking information that caused executing brokers to violate the SEC’s Regulation SHO rule, the SEC said.

Regulation SHO requires broker-dealers to identify a source of borrowable stock before executing a short sale in any equity security with the goal of reducing the number of situations where stock is unavailable for settlement.

Murchinson and Bistricer also settled charges for causing a dealer to fail to register with the SEC, according to the SEC.

“We are pleased to have resolved this highly technical matter,” a company spokesperson told ThinkAdvisor on Wednesday.

Bistricer serves as the firm’s CIO, according to his LinkedIn profile. Zogala also served as the company’s chief compliance officer as of March 29, according to its most recent Form ADV filing with the SEC.

In an order filed Tuesday that instituted cease-and-desist proceedings against the firm, Bistricer and Zogala, the SEC alleged that, from June 2016 through October 2017, the respondents provided inaccurate order-marking information on hundreds of sale orders of their hedge fund client to the hedge fund’s brokers, causing those brokers to mismark the hedge funds’ sales as “long.”

In providing the erroneous information, the respondents also caused the hedge fund’s brokers to fail to borrow or locate shares before executing the sales, the SEC alleged. Murchinson and Bistricer also caused the hedge fund to engage in dealer activity without registering with the SEC or being exempt from registration, according to the SEC.

“Regulation SHO protects our markets against uncovered short sales and other problematic trading practices, so it is important to hold accountable market participants who cause violations of its critical requirements,” Jennifer S. Leete, associate director of the SEC Enforcement Division, said in a statement.

Without admitting or denying the findings, the respondents each agreed to the  cease-and-desist orders, the SEC said.

Murchinson and Bistricer also agreed to pay, jointly and severally, disgorgement of $7 million with prejudgment interest of $1.1 million, while Murchinson, Bistricer and Zogala also agreed to pay penalties of $800,000, $75,000, and $25,000, respectively, the SEC said.

Murchinson and Bistricer also “agreed to certain undertakings to ensure future compliance with Regulation SHO,” according to the SEC.

(SEC headquarters in Washington; Photographer: Andrew Harrer/Bloomberg)