NEW YORK (Reuters) – Securities regulators said on Thursdaythey settled with a Wall Street trader accused of intentionallyspreading false rumors about the planned acquisition ofAlliance Data Systems Corp (ADS.N: Quote, Profile, Research) while selling the stockshort.
Paul Berliner, 32, formerly associated with SchottenfeldGroup LLC, agreed to settle the civil case without admitting ordenying the allegations, the U.S. Securities and ExchangeCommission said in a statement.
The SEC said Berliner would disgorge $26,129 in profits andinterest and pay a maximum penalty of $130,000. He is alsobarred from association with any broker or dealer.
Blackstone Group LP (BX.N: Quote, Profile, Research) agreed on May 17, 2007, to buyAlliance 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 31traders at brokerage firms and hedge funds to spread a rumor onNovember 29 that ADS’s board of directors was meeting toconsider a revised proposal from Blackstone to acquire theircompany at $70 a share.
The rumor spread quickly as "the media and certainsubscriber-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 apiece from $77 and Berliner profited from the rumor even as hewas spreading it by short-selling ADS stock, the complaintsaid.
SEC Chairman Christopher Cox said agency investigators wereable to wade through e-mails and instant messages and trackdown Berliner within a week.
"I don’t think there’s a better example of how fast the SECcan work and do its electronic forensics," Cox said during anappearance on CNBC.
Cox said the case also demonstrated how seriously theagency takes market manipulation.
"Rumors and market information are close cousins," he said."What we’re after is people who are fabricating thingsknowingly."
Cox declined to comment directly on whether the agency wasinvestigating similar negative rumors about investment bankLehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research), but said "you can expectwhenever there are very big issues in the market, theSecurities and Exchange Commission is paying close attention tothem."
Calls to Schottenfeld Group seeking a comment were notimmediately returned. Berliner’s lawyer was not immediatelyavailable for comment.
(Reporting by Martha Graybow, Leslie Gevirtz; Additionalreporting by Karey Wutkowski in Washington; Editing by MaureenBavdek/Andre Grenon)
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