The Securities and Exchange Commission on Thursday charged a Wall Street trader with spreading lies about Blackstone Group’s attempted purchase of Alliance Data Systems Corp. and profiting from the scheme.
Last November, Paul Berliner, a trader formerly associated with the Schottenfeld Group LLC, spread a rumor that Blackstone would renegotiate its offer for ADS from $81.75 a share to $70 per share, the agency said.
The rumor, which Berliner spread through instant messages to other traders at brokerage firms and hedge funds, caused ADS’s shares to plummet 17 percent, from $77 to $63.65, in 30 minutes, the SEC said. The shares later recovered after ADS said the rumor was false.
Berliner, meanwhile, bet that ADS shares would fall by selling the company’s shares short and profited from doing so, the agency said.
“The story disseminated by Mr. Berliner was a figment of his imagination,” Scott Friestad, associate director of the SEC’s enforcement division, said in a statement. “Conduct like this is particularly insidious because it harms investors by distorting the information they use to make investment decisions.”
The SEC’s action comes as members of Congress have pressed the agency to investigate other market rumors surrounding investment banks such as Bear Stearns, which nearly collapsed last month, and Lehman Brothers Holdings Inc.
While the agency doesn’t comment on ongoing investigations, SEC Chairman Christopher Cox told the Senate Banking Committee April 3 that members’ demands would be “met or exceeded,” an agency spokesman said.
Rick Schottenfeld, chairman of the New York-based firm, said “compliance is a top priority.”
“There is no place at our firm for individuals who violate securities laws,” he said, adding that Berliner was suspended in December.
Berliner agreed to settle the charges, without admitting or denying the allegations, by paying a fine of more than $156,000, the agency said. The fine included disgorgement of $26,000 in profits and interest.
ADS, a Dallas-based credit-card services provider, said it terminated the $6.5 billion deal with Blackstone, a New York-based private equity firm, earlier this month.