SEC settles with Canadian adviser for short-selling violations

A Toronto-based hedge fund adviser has been sanctioned by the U.S. Securities and Exchange Commission (SEC) for violating its short-selling rules.

The SEC settled charges against investment adviser Murchinson Ltd., its principal Marc Bistricer and  trader Paul Zogala for providing erroneous order-marking information on trades that should have been marked as short sales, causing their executing brokers to violate the short-selling rule.

The SEC’s order found that by providing the inaccurate information, the hedge fund’s brokers failed to borrow or locate shares prior to executing trades. And it found that Murchinson and Bistricer caused the hedge fund to engage in dealer activity without registering.

Without admitting or denying the regulator’s findings, Murchinson and Bistricer agreed to settle the allegations and to pay US$7 million in disgorgement and over US$1 million in prejudgment interest. Murchinson, Bistricer and Zogala also agreed to pay penalties of US$800,000, US$75,000 and US$25,000, respectively.

They also agreed to cease and desist orders, and Murchinson and Bistricer agreed to certain undertakings to ensure future compliance with the short-selling rule, known as Regulation SHO.

“Regulation SHO protects our markets against uncovered short sales and other problematic trading practices, so it is important to hold accountable market participants who cause violations of its critical requirements,” said Jennifer Leete, associate director of the SEC’s enforcement division, in a release.

A spokesperson for Murchinson said in a statement: “We are pleased to have resolved this highly technical matter.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.