SEC Investigation Five Years Too Late

Shareholders and Issuers Irreparably Harmed by BTIG, LLC

Where do you turn if you’re a public company and your stock is shorted to oblivion? Obviously not to the Securities and Exchange Commission (SEC) which took over five years to bring action against a broker-dealer that aided a hedge fund illegally shorting NASDAQ listed companies.

In an SEC complaint filed in May of 2021, the SEC finally acted against a broker-dealer for securities violations that began in December 2016. The SEC charged that by facilitating orders from a hedge fund, broker-dealer BTIG, LLC “repeatedly violated the order marking and locate requirements of Rules 200(g) and 203(b)(1) of Regulation SHO [17 C.F.R. §§ 242.200(g), 242.203(b)(1)] under the Securities Exchange Act of 1934 which regulates the short selling of securities and was designed, in part, to restrict naked short selling and to reduce failures to deliver.”

Naked short selling is illegal as the SEC explained in the complaint, “Naked short selling is the unlawful practice of short selling shares that have not been borrowed or located.” As the complaint detailed, “From December 2016 through July 2017, BTIG mismarked as “long” or “short exempt” over 90 sale orders from a single hedge fund customer – totaling more than $250 million in sale orders and comprising nearly 160 million shares of stock – in violation of Rule 200(g) of Regulation SHO. BTIG’s customer was not deemed to own the shares of stock sold, because the Hedge Fund: (i) did not have title to the stock; (ii) had not purchased or entered into an unconditional contract binding on both parties thereto to purchase the stock; (iii) did not own a security convertible into the stock that it had tendered for conversion; and (iv) did not have a net long position in the stock. BTIG’s customer was, therefore, “short,” and BTIG should have correctly marked its customer’s sale orders as short.”

Why didn’t they mark the trades “short” as required by law? It’s clear that the facts were manipulated to manipulate the market for the benefit of the short position.

During this period BTIG earned approximately $1.6 million in commissions from placing mismarked sale orders for the hedge fund and generated the highest revenue of all BTIG’s prime brokerage customers.

Even though the illegal transactions started in 2016, the SEC didn’t take action until May 2021 and it wasn’t settled until May 2022. It took over five years to deliver some semblance of justice to the broker-dealer alone. The outcome? The SEC fined BTIG $690,000 which goes to the SEC and the court also ordered BTIG to pay disgorgement of $315,048, prejudgment interest of $64,258, and a penalty of $315,048. Both the penalty and disgorged funds may, at the discretion of the SEC, be distributed to investors who were harmed by securities law violations.

What about the issuers and the shareholders? Screwed as usual.

Shareholders and both of the targeted issuers suffered irreparable damage. In fact, one of the issuers even had to withdraw from the public markets and went private. Shareholders were left in the dark to wrestle with their losses.

A SOLUTION FOR OTHER SHORTED COMPANIES

Where’s the justice? What recourse does an issuer have against flagrant violations that even the SEC doesn’t swiftly enforce? The US~Observer.

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Don’t wait years for a government agency to act in its own interest by taking the funds generated by the fine. Meet your challenge head on and let The US~Observer right your financial wrong.