A former trader has settled charges that he used a rumor campaign among fellow traders and hedge funds to depress stock prices for his own end, the Securities and Exchange Commission said.
Paul Berliner, formerly of the New York proprietary trading firm Schottenfeld Group, was charged in what the SEC characterizes as its first rumormongering case. The agency alleges that he spread false rumors to 31 traders and others about private equity giant The Blackstone Group’s acquisition of credit card processor Alliance Data System.
According to the SEC, he sent instant messages on Nov. 29 claiming that Blackstone was renegotiating the price it would pay for ADS from $81.75 per share to $71 per share, leading to a 17% drop in ADS’ stock price and a more than $20,000 profit for Berliner, who shorted ADS. ADS later recovered the loss after issuing a press release denying the rumor.
Berliner settled without admitting or denying the charges.
“The story disseminated by Mr. Berliner was a figment of his imagination,” Scott Friesad of the SEC Division of Enforcement said. “Conduct like this is particularly insidious because it harms investors by distorting the information they use to make investment decisions.”
Berliner has agreed to pay more than $150,000 in disgorgement, interest and a civil penalty, as well as being barred from association with brokers and dealers.