SEC Charges Trader with Spreading False Rumors

By Reuters -  |  Posted 2008-04-24 Print this article Print

The SEC settles with a trader accused of spreading false information while selling short on the stock of Alliance Data Systems.

NEW YORK (Reuters) - Securities regulators said on Thursday they settled with a Wall Street trader accused of intentionally spreading false rumors about the planned acquisition of Alliance Data Systems Corp (ADS.N: Quote, Profile, Research) while selling the stock short.

Paul Berliner, 32, formerly associated with Schottenfeld Group LLC, agreed to settle the civil case without admitting or denying the allegations, the U.S. Securities and Exchange Commission said in a statement.

The SEC said Berliner would disgorge $26,129 in profits and interest and pay a maximum penalty of $130,000. He is also barred from association with any broker or dealer.

Blackstone Group LP (BX.N: Quote, Profile, Research) agreed on May 17, 2007, to buy Alliance for $81.75 a share, but the deal collapsed this month.

Berliner, according to the SEC complaint filed in the U.S. District Court in Manhattan, used instant messages to 31 traders at brokerage firms and hedge funds to spread a rumor on November 29 that ADS's board of directors was meeting to consider a revised proposal from Blackstone to acquire their company at $70 a share.

The rumor spread quickly as "the media and certain subscriber-based news services quickly picked up the 'story' and further disseminated it throughout the marketplace," according to the complaint.

The result was that ADS's share price plummeted to $63.65 a piece from $77 and Berliner profited from the rumor even as he was spreading it by short-selling ADS stock, the complaint said.

SEC Chairman Christopher Cox said agency investigators were able to wade through e-mails and instant messages and track down Berliner within a week.

"I don't think there's a better example of how fast the SEC can work and do its electronic forensics," Cox said during an appearance on CNBC.

Cox said the case also demonstrated how seriously the agency takes market manipulation.

"Rumors and market information are close cousins," he said. "What we're after is people who are fabricating things knowingly."

Cox declined to comment directly on whether the agency was investigating similar negative rumors about investment bank Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research), but said "you can expect whenever there are very big issues in the market, the Securities and Exchange Commission is paying close attention to them."

Calls to Schottenfeld Group seeking a comment were not immediately returned. Berliner's lawyer was not immediately available for comment.

(Reporting by Martha Graybow, Leslie Gevirtz; Additional reporting by Karey Wutkowski in Washington; Editing by Maureen Bavdek/Andre Grenon)


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