SEC Charges Broker-dealer And Three Traders With Violating Short Sale Rules

By Francine McKenna Markets MarketWatch Pulse

The Securities and Exchange Commission settled charges against the CEO of broker-dealer Wilson-Davis & Co. Paul Davis, and two of the firm's traders for making numerous naked short sales in over-the counter equity securities between November 2011 and May 2013. The charges against the Wilson-Davis firm are being contested. Regulation SHO requires that, before a broker-dealer effects a short sale, the trader must "locate" a source of borrowable securities that can be delivered on the date that delivery is due. Wilson-Davis relied on the bona-fide market making exception for all short sales by its proprietary trading group but that was improper, the SEC said, because much of the firm's proprietary trading activity was not, in fact, bona-fide market making. This is also the first time that the SEC has charged a CEO of a broker-dealer with violating the CEO certification requirement of the Market Access Rule. Davis consented to the order without admitting or denying the findings and agreed to pay a penalty of $25,000. Anthony Kerrigone, a former proprietary trader neither admitted nor denied the findings and agreed to pay back $486,840 in trading profits and penalty and interest of $113,160. Byron Barkley, the head trader, neither admitted nor denied the findings and agreed to pay back $67,710.20, in trading profits and penalty and interest $58,977.

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