Alea

Sleazy trader will forfeit his $26k gain and pay $130k fine.

From Bloomberg:

A former Schottenfeld Group LLC trader will pay $156,000 to settle claims he spread false rumors about Blackstone Group LP’s bid for Alliance Data Systems Corp., the first U.S. regulatory case to target stock manipulation during the credit crisis.

Paul Berliner, 32, sought to profit by messaging traders at brokerages and hedge funds on Nov. 29, claiming Alliance Data’s board was meeting to discuss a reduced offer by Blackstone, the Securities and Exchange Commission said today in a suit at federal court in Manhattan. The shares plunged 17 percent in half an hour that day.

“The story disseminated by Mr. Berliner was a figment of his imagination,” said Scott Friestad, an SEC attorney overseeing its case, said in an interview. “Conduct like this is particularly insidious because it harms investors by distorting the information they use to make investment decisions.”

U.S. regulators are hunting for traders who are exploiting the credit crisis by falsely stoking panics about the stability of companies including Bear Stearns Cos. to profit from drops in their stock price. SEC Chairman Christopher Cox told the Senate Banking Committee April 3 the agency takes such manipulation “very seriously” and that lawmakers’ hopes for a crackdown would be “met or exceeded.”

“The commission will vigorously investigate and prosecute those who manipulate markets with this witch’s brew of damaging rumors and short sales,” Cox said in a statement.

Alliance Data’s stock jumped 7 percent to $56.79 as of 12:43 p.m. in New York Stock Exchange composite trading.

Price Drop

Berliner sent 31 instant messages to traders and other Wall Street professionals, asserting that Blackstone was revising its bid because of problems in Alliance Data’s credit-card bank, according to the SEC. Blackstone wanted to lower its bid from $81.50 a share to $70, he allegedly said.

“ADS getting pounded — hearing the board is now meeting on a revised proposal,” the SEC quoted his message as saying. “Blackstone is negotiating a lower price due to weakness in World Financial Network — part of ADS’ Credit Services Unit.”

The plunge in the Dallas-based credit-card processor’s stock drew news reports on the rumor and forced the New York Stock Exchange to temporarily halt trading in the shares, the SEC said. Alliance Data also released a public statement denying it was renegotiating the takeover.

$130,000 Fine

Berliner, who was shorting the stock to profit from the drop in price, made more than $25,000 before the shares recovered, according to the SEC. He didn’t admit or deny the agency’s claims in agreeing to forfeit his gains, plus interest, and pay a $130,000 fine.

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Posted by jck at 1:31 pm EST on April 24th, 2008 |